Buying an operating franchise in Guatemala: check its liabilities

Buying a franchise that is already trading lets you assess the business before investing, but it also means checking commitments made by someone else. In franchising, an operating outlet is not a risk-free purchase. Beyond the price, you need to establish what you will receive, which obligations could come with it and whether you can continue trading under the brand.

1. Establish whether you are buying assets or a company

Before assessing the offer, ask the seller to specify exactly what the transaction covers. Acquiring equipment, stock and certain rights is not the same as buying shares in the company that operates the outlet.

If you buy shares in a company, the company retains its obligations, even when its owners change. Its tax, employment, commercial and litigation history remains relevant. A debt omitted from the sales presentation could later affect the assets of the company you now control.

If you are buying assets, identify each asset being transferred and the conditions attached. This structure does not mean all risks disappear either: assets may be subject to charges, contracts may require consent to transfer, and potential liabilities must be assessed under the applicable law.

Prepare a schedule for the purchase agreement that distinguishes between:

• Equipment that is owned outright, financed, leased or borrowed.
• Available stock and goods held on consignment.
• Deposits, advance payments and receivables.
• Contracts intended for transfer.
• Outstanding debts and commitments, identifying who is proposed to take responsibility for each.

Do not accept a description such as ‘the entire business’ without supporting schedules that allow you to verify what it includes.

2. Confirm that the franchise can be transferred to you

Buying the outlet does not, in itself, guarantee the right to use the brand and operating system. Review the current agreement and request written confirmation from the franchisor regarding the proposed transaction. An approved assignment or a new agreement may be required.

Guatemala has no specific franchise law. The relationship is governed by the Commercial Code, the Civil Code and the Industrial Property Law, Decree 57-2000, alongside other rules applicable to the business. Article 280 of the Commercial Code excludes commercial franchises from the chapter on commercial agents, distributors and representatives; you should not assume that its protections apply to this purchase.

The Industrial Property Law regulates trade mark licences and includes provisions applicable to franchise agreements. Unless otherwise agreed, the licence cannot be assigned and does not permit sublicensing. Paying the outgoing operator therefore does not replace any authorisation required.

Ask the franchisor to detail any outstanding breaches and confirm what must be put right before it will approve the buyer. Also check whether the transaction triggers transfer or training fees. These are conditions to verify and negotiate, not charges universally required by law.

3. Check obligations that are not reflected in the price

Arrange due diligence with a lawyer and an accountant who are independent of the seller. Request documents and cross-check them; a statement that ‘everything is up to date’ is no substitute for verification.

Staff. Review employment contracts, payroll records, length of service, holiday entitlements, benefits and payments to the Guatemalan Social Security Institute. The Labour Code provides for a change of employer: a change of operator does not mean you can assume employment relationships start afresh. Establish how the specific purchase structure affects these obligations.

Tax. Examine returns, payments, formal requests and proceedings involving the Superintendency of Tax Administration, Guatemala’s tax authority. A single certificate does not provide an absolute guarantee covering all periods and potential liabilities.

Suppliers and customers. Reconciling balances can reveal unpaid invoices, customer payments received in advance, unfulfilled orders, warranty obligations and vouchers that remain valid. Specify who will honour each commitment after completion.

Equipment and stock. Check ownership, charges over assets, maintenance records and physical condition. Carry out a stocktake close to completion and separate out products that have expired, are damaged or can no longer be sold under the franchise system.

4. Turn your findings into conditions for completion

Due diligence only protects your investment if its findings are reflected in the purchase documents. Attach a schedule of assets, identified obligations and commitments that the seller must resolve before handing over the business.

With local legal advice, negotiate contractual statements about the information supplied, indemnities for undisclosed liabilities and, where appropriate, retention of part of the purchase price. Define amounts, time limits, evidence requirements and the claims procedure: a general promise to accept responsibility offers little clarity.

Remember that allocating responsibility between buyer and seller does not necessarily limit the rights of employees, authorities or creditors. Also check which permits can remain in force and which need updating or a fresh application.

Practical conclusion: do not complete the purchase until three elements are in place and consistent with one another: a schedule of what you are acquiring, authorisation to continue operating the franchise and written provisions addressing existing obligations.