Franchises in Guatemala: agree how you can sell your business

Buying a franchise also means thinking about a possible future sale. If your plans change, finding a buyer does not guarantee that you can transfer the business together with the right to use the brand and the franchise agreement. When entering a franchise relationship, agree the conditions for exiting through a sale from the outset: who must approve it, what requirements the buyer must meet, how much the transaction will cost and when your liability ends.

1. Distinguish between selling assets and transferring the franchise

Selling furniture, stock or equipment is not the same as transferring the right to operate under a brand. Nor is assigning the agreement necessarily the same as selling shares in the company that signed it. The agreement may require approval in both cases, even if the operating company remains the same.

Guatemala has no specific law comprehensively regulating franchises, nor a mandatory franchise-specific pre-contractual disclosure regime. The relationship is governed primarily by the Commercial Code, Decree 2-70, and the Civil Code, Decree-Law 106. The Industrial Property Law, Decree 57-2000, regulates trademark licences, among other matters.

The latter provides that, unless otherwise agreed, a trademark licence cannot be assigned. Therefore, do not assume that buying or selling the business automatically transfers permission to use the brand. The absence of comprehensive franchise legislation does not mean that any agreement can be assigned without consent.

Ask a local lawyer to identify which transaction structure would allow a future sale and what approvals it would require. The aim is to agree a procedure, rather than rely on an exception the franchisor might later refuse to make.

2. Define how the buyer will be approved

The franchisor may want to check that the incoming operator has the financial and operational capacity to maintain standards. Problems arise when approval depends on undisclosed criteria or there is no deadline for a response.

Before buying, negotiate a clause specifying:

• Required profile: the experience, availability and financial capacity the candidate must demonstrate.
• Application documents: the documents needed for the application to be considered complete.
• Assessment: who makes the decision and how the reasons for any refusal will be communicated.
• Timetable: deadlines for requesting further information and responding.
• Preparation: the training the buyer must complete before taking over the business.

Aim for conditions that can be objectively checked. A general reference to an “acceptable” candidate offers less certainty than a list of known requirements. Do not assume that no response means approval: expressly agree how silence will be treated, with legal advice.

Also check whether the franchisor has a right of first refusal. If so, define which offer you must disclose, how long the franchisor has to decide and how the terms will be compared. A process with no clear end date may make it difficult to persuade a third-party buyer to keep their offer open.

3. Calculate the costs and conditions of the transfer

The price you agree with the buyer will not necessarily be the amount you ultimately receive. The agreement may include transfer, assessment or training fees. Ask for each charge to have a specified payer and a defined amount or calculation method.

Prepare an estimate of the net sale proceeds that also accounts for professional advice, documentation, applicable taxes and outstanding obligations. An accountant should determine the tax treatment according to whether you are selling assets, shares or other rights; these transactions should not all be treated as equivalent.

Clarify what the buyer will receive, too: will they take over the agreement for its remaining term, or have to sign a new one? If they must accept different terms, this may affect their interest and the price they offer.

Ask for any requirements associated with the transfer to be identified in advance. Avoid a vague obligation to carry out “all necessary alterations” that leaves no limit on the expenditure required to obtain approval.

4. Coordinate completion and your release from obligations

Approval to sell does not, by itself, release you from all your obligations. The completion document should distinguish between existing debts, commitments the buyer takes on and any liabilities that remain with you.

Pay particular attention to personal guarantees: request an express release where appropriate and check who must grant it. The franchisor’s approval does not automatically release a guarantee given to a bank, landlord or other creditor.

Coordinate the payment date, the handover of the business and the date on which the assignment or new agreement takes effect. If you first sign a preliminary sale agreement, have it drafted to address outstanding approvals and the consequences of failing to obtain them. This reduces the risk of committing to a transfer you cannot yet complete.

Practical conclusion: before investing, agree four things: what you can transfer, who must approve it, how much it will cost and which document will confirm your release from obligations.