Franchising in Argentina: how to assess personal guarantees

Buying a franchise can put more than your initial business investment at risk. If you sign a personal guarantee, certain debts of the operating company could be recovered from your personal assets. Before entering Argentina’s franchise market, check who is providing each guarantee, which obligations it covers and how long the guarantor remains liable. This deserves a separate review, not a hurried signature at the end of the contract.

1. Identify every guarantee and who is providing it

Start by gathering all documents that could create personal liability. Reading the franchise agreement alone is not enough: guarantees may also appear in the lease, equipment finance agreements or related contracts.

Request complete drafts and record four details for each document: the creditor, the principal debtor, the guarantor and the obligation being guaranteed. If the same person signs several documents, assess their combined exposure.

Pay particular attention to these situations:

• You sign both on behalf of the company and in your own capacity. Signing as a company representative and signing as a guarantor have different effects.
• A family member guarantees the business’s obligations. They should understand the extent of their commitment and receive independent advice.
• Several shareholders act as guarantors. Do not assume the creditor can only pursue each person for a share proportionate to their ownership stake.
• Promissory notes or other additional instruments are provided. These need a specific review: they are not merely administrative paperwork.

Using a company does not cancel out a personal guarantee given by its shareholders. Nor does every document labelled a “guarantee” work in the same way: its content matters, not just its title.

2. Understand what Argentine law allows creditors to claim

In Argentina, franchise agreements are specifically governed by Articles 1512 to 1524 of the Civil and Commercial Code of the Nation. These provisions do not impose a general requirement for buyers to provide a personal guarantee when acquiring a franchise. If the franchisor requests one, its scope should be examined as part of the negotiations.

Article 1520 establishes that the parties are independent and, as a general rule, that the franchisor is not liable for the franchisee’s obligations unless legislation expressly provides otherwise. This does not mean that the franchisee’s shareholders are automatically required to guarantee its debts.

Where a surety guarantee, known locally as a fianza, is used, Articles 1574 onwards of the Civil and Commercial Code are also relevant. A fianza is an accessory obligation: the guarantor undertakes to answer to the creditor for another party’s obligation if that debtor defaults.

There are important differences between an ordinary fianza, a joint and several fianza and an undertaking as a “principal payer” (principal pagador). Depending on the arrangement and any agreed waivers, the creditor may have different rights to pursue the guarantor directly without first seeking recovery from the debtor’s assets. Ask your lawyer to explain the practical effect of these terms.

Article 1578 also requires a maximum amount to be specified in a general fianza covering existing or future obligations. Its provisions also set time limits on the new obligations it can cover. Do not accept open-ended wording without checking how these rules apply to your document.

3. Negotiate the amount, scope and duration separately

A guarantee should enable you to answer a simple question: what is my maximum exposure, and what events could trigger liability? If the answer is open to interpretation, the contract needs more work.

Propose reviewing the following separately:

• The amount: seek an explicit cap and check the currency and any adjustment mechanism.
• The scope: identify whether it covers only contractual payments or also interest, penalties, compensation and recovery costs.
• The duration: distinguish between the period in which covered debts can arise and the deadline for making claims in respect of them.
• Changes: clarify what happens if the financial terms change, the business expands or the agreement is renewed.
• Allocation of liability: if there are several guarantors, check whether liability is joint and several or whether individual limits are binding on the creditor.

For example, guaranteeing outstanding payments for one outlet is not the same as backing any future debt of every outlet the company opens. The wording must make that distinction clear.

If the franchisor will not agree to remove the guarantee, explore alternatives: narrowing its scope, limiting it to specified obligations or agreeing that it can be replaced once objective conditions are met. These are options for negotiation, not automatic buyer rights.

4. Document the guarantor’s release

Ceasing to be a shareholder, changing the company’s management or reaching an internal agreement for someone else to take over the debts does not necessarily release a guarantor from liability to the creditor. The release procedure should therefore be clear from the outset.

Ask for the agreement to specify whose consent is needed, what documentation is required and how any outstanding obligations will be identified. Where appropriate, obtain an express written release and arrange for the return or cancellation of any associated instruments.

Keep contracts, schedules, amendments, proof of payment and correspondence. Before signing, ask your lawyer for a written summary of the personal risk you are taking on, including any obligations that could survive the closure of the business.

Practical takeaway: do not sign a guarantee unless you can explain its amount, scope and duration. Setting clear limits on your liability allows you to enter the franchise market with an informed understanding of the risk to your personal assets.