Buying a Franchise in Australia: Check Personal Guarantees

Buying through a company does not necessarily keep a franchise’s risks separate from your personal finances. A personal guarantee can make you responsible for obligations that the company cannot meet. Before joining Australia’s franchising community, check whether the franchisor requires a guarantee, who must sign it and how far it reaches. Treat it as a separate financial commitment, not an administrative formality.

Understand what you are promising

The franchisee named in the agreement might be a company, while you sign separately as its director and as a guarantor. Those signatures serve different purposes. Signing for the company does not mean the same thing as accepting personal responsibility for its obligations.

A guarantee generally promises to answer for another party’s obligations if that party defaults. An indemnity can create a separate obligation to compensate for specified losses. Franchise documents may combine both, so ask your solicitor to explain each provision rather than relying on the heading.

Look beyond unpaid franchise fees. Depending on the wording, the commitment could extend to damages, interest, enforcement expenses or other obligations under the agreement.

Ask your solicitor to identify:

• The person or organisation receiving the guarantee.
• Every person who must give it.
• The debts and obligations it covers.
• Whether there is a monetary limit.
• What events allow a claim against you.

Do not assume that the franchisor must exhaust every recovery option against the company before approaching a guarantor. The documents and applicable law need careful review.

Locate every guarantee before comparing brands

Read the complete proposed franchise agreement, including schedules, deeds and signature pages. A guarantee may sit in a separate document or within the agreement itself. Ask for every document that you and any proposed co-owner will be expected to sign.

Australia specifically regulates franchising through the mandatory Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission. The current Code commenced on 1 April 2025, with transitional arrangements for some obligations. The Australian Consumer Law and general contract law also matter.

The Code requires pre-contract disclosure, including provision of the franchise agreement and disclosure document. These requirements help you investigate the commitment; they do not amount to government approval of a guarantee or a promise that your assets are protected.

When comparing brands, record the guarantee requirements alongside the purchase price. Two opportunities with similar upfront costs can expose your household to very different risks.

Keep franchisor guarantees separate from guarantees requested by a landlord, lender or supplier. Removing one does not release you from the others.

Test the consequences for your household

Ask your accountant to model a difficult trading outcome, then have your solicitor explain which resulting obligations might fall within the guarantee. The aim is to understand personal exposure, not merely whether the franchise company could survive.

Consider three situations: the company misses payments, the business stops trading with obligations outstanding, or one owner leaves while the others continue operating.

If several people give guarantees, check whether liability is described as “joint and several”. Depending on the terms, a creditor may be able to pursue one guarantor for the whole covered debt rather than only that person’s ownership share.

A private agreement between business partners about sharing losses does not necessarily restrict the franchisor’s rights. Nor should you assume that selling your shares or resigning as a director automatically ends your guarantee.

If a spouse or another person who will not operate the franchise is asked to sign, ask why. Each proposed guarantor should obtain advice about their own position, particularly where their interests differ from those of the business owners.

Negotiate limits and a clear release process

Before signing, ask whether the franchisor will accept a capped guarantee, a narrower definition of covered obligations or a defined expiry. These are negotiating requests, not automatic franchisee rights.

Also ask what happens when the franchise agreement changes, is renewed or is transferred. Does the guarantee continue? Does it cover future variations? What written release will be required when you leave?

Your solicitor should assess whether unfair contract terms protections under the Australian Consumer Law apply to the particular documents. A guarantee is not automatically unfair simply because it creates substantial exposure, and you should not sign on the assumption that it will later be unenforceable.

Have any agreed limits incorporated into the signed documents. Keep copies of the final guarantee, amendments and any eventual release; an informal assurance that you are “off the paperwork” is not a substitute for a legally effective release.

Practical takeaway: Before committing, obtain a written explanation of who is liable, what is covered, whether exposure is capped and how release works. Assess the franchise against that personal risk, not just its advertised entry cost.