Buying a Franchise in Croatia: Personal Guarantees and Risks

Joining a franchise network often involves more than investing in equipment and paying an initial fee. The franchisor or bank may ask you to personally guarantee your company’s obligations. Signing such a guarantee can put your personal assets at risk if the business fails. Before accepting an offer, check not only how much you need to pay, but also who is liable if the company cannot settle its debts.

1. Distinguish company debt from personal liability

If you buy a franchise through a limited liability company, its members are generally not liable for its obligations, subject to statutory exceptions. A personal guarantee, however, creates a separate obligation. The company’s limited liability does not protect you against commitments you have signed personally. The position is different for a Croatian sole-trader business (obrt): the proprietor is generally liable for the business’s obligations with their own assets, subject to statutory restrictions on enforcement.

When reviewing the documents, distinguish between several possible roles:

• Guarantor (jamac): undertakes to fulfil the debtor’s valid obligation once it falls due if the debtor fails to do so, under the rules applicable to that particular guarantee.
• Joint and several guarantor (jamac platac): the creditor can demand payment directly from this guarantor, from the principal debtor or from both at the same time.
• Joint and several co-debtor (solidarni sudužnik): owes the debt as a debtor, rather than merely providing security for someone else’s obligation.
• Third-party security provider (založni dužnik): provides specified assets as security; check whether they also assume a personal obligation to pay.

Crucially, under Croatia’s Civil Obligations Act, a guarantor for an obligation arising from a commercial contract is liable as a joint and several guarantor unless otherwise agreed. Do not assume that the word ‘guarantor’ automatically protects you from a direct demand for payment.

2. Understand the rules that apply in Croatia

Croatia has no specific franchise legislation or dedicated statutory regime requiring pre-contractual disclosure for franchises. Franchise agreements are not separately regulated as a named category of contract. General rules apply, principally those in the Civil Obligations Act (Zakon o obveznim odnosima), including rules on good faith and fair dealing, negotiations, performance of obligations and guarantees. A guarantee declaration binds the guarantor only if it is made in writing.

The Companies Act (Zakon o trgovačkim društvima) is important when distinguishing a company’s obligations from the liability of its members. The Enforcement Act (Ovršni zakon) governs compulsory debt recovery and instruments such as the zadužnica, a Croatian debt-enforcement instrument. Depending on the security provided, the Ownership and Other Real Rights Act (Zakon o vlasništvu i drugim stvarnim pravima) may also be relevant, for example where security is taken over property.

The European Code of Ethics for Franchising is a self-regulatory standard for the franchise sector, not Croatian law. Whether it binds a particular franchisor should be checked against their membership commitments and the contract. Nor does inclusion in the Croatian Chamber of Economy’s (HGK) Franchise Register amount to statutory approval of an offer or confirmation that a personal guarantee is safe.

This means that contractual protections need to be carefully drafted within the limits of mandatory law. Do not rely on a franchise-specific cooling-off period or automatic release from a guarantee.

3. Negotiate the amount, scope and duration

A request for a guarantee is not simply a matter of accepting or refusing. Propose proportionate security that protects the creditor without exposing your family to unlimited liability.

Start by setting an overall cap. The contract should clearly state whether this includes principal, interest, recovery costs and other claims. A cap that applies only to principal may leave you exposed to additional amounts.

Next, specify which obligations you are covering. A guarantee for the initial fee is not the same as a guarantee for all current and future obligations arising from the franchise relationship. Check whether the wording includes fees payable to affiliated companies, damages or obligations arising from later amendments to the contract.

Agree the duration and release arrangements. Distinguish between the period during which covered debts may arise and the period during which a claim may be made under the guarantee. Propose a reduction in security after a period of timely payments or once a particular obligation has been repaid. Changes that increase your exposure should require separate written consent.

Ask to be notified of late payments. Early warning and an agreed period to remedy a breach can help you act before recovery begins. These protections must be consistent with all security instruments issued; a sentence in the franchise agreement alone is not enough if other documents allow a different course of action.

4. Review all security arrangements together

Create a table with five columns: creditor, secured obligation, maximum exposure, security instrument and conditions for its release or termination. Include the bank, the franchisor and anyone else to whom you provide security. This will help you see whether the same assets secure several obligations.

Pay particular attention to zadužnice and bjanko zadužnice — debt-enforcement instruments, including versions issued with certain details left blank for later completion. These can allow direct debt recovery through Croatia’s Financial Agency (Fina) when the statutory conditions are met. Check who issues them, the capacity in which you sign, the permitted amount and when the document must be returned or cease to be used. Notarial certification or authentication is no substitute for independent advice on whether the risk is acceptable.

Give your lawyer the entire document package, not just the franchise agreement. Ask for a written explanation of the worst-case scenario, including the consequences for your personal assets and your spouse’s position if their signature is required.

Practical takeaway: before joining a franchise network, establish your maximum personal exposure, the obligations covered and the conditions for release. If any of these points are unclear, postpone signing until the documents have been brought into line.