Franchises in Guatemala: choosing the purchasing company

Buying a franchise with business partners means deciding more than how much each person will contribute: you also need to establish which individual or company will acquire the rights and take on the obligations. In Guatemala’s franchise market, that choice must align with the franchisor’s contract. If you sign in your own name first and then try to transfer the business to a company, you may need approval you had not anticipated.

1. Decide who will be the franchisee from the outset

Distinguish between three roles: the person providing the funds, the person or company acquiring the franchise, and the person running the business. These roles may overlap, but they do not necessarily belong to the same person. An investor does not automatically become a party to the franchise agreement, nor does a manager acquire rights to the brand simply by running the outlet.

Before paying or signing anything, prepare a summary covering:

• The identity of the proposed buyer: an individual or a company.
• The participating owners and their committed contributions.
• The person who will manage the business.
• The intended holder of the bank accounts and the person or company that will issue invoices.
• The company’s incorporation and registration status, where applicable.

Share this structure with the franchisor and request written acceptance. Some brands assess both the company and particular owners or operators. Do not assume that accepting an investor means accepting any company they set up.

If the company does not yet exist, seek advice on how to document preliminary dealings and who will be responsible for them. Avoid presenting a company that is still being formed as though it can already take on all the obligations.

2. Choose a structure under Guatemalan law

Guatemala has no specific law comprehensively regulating franchises, nor a special mandatory pre-contractual disclosure regime for franchise sales. The relationship falls under the general provisions of the Commercial Code, Decree 2-70, with the Civil Code applying where needed to supplement them. The Industrial Property Law, Decree 57-2000, governs matters such as trade marks and their licensing.

The Commercial Code and the relevant registrations with the Commercial Registry are also central to incorporating the purchasing company. Registering a company does not amount to official approval of the franchise, nor does it certify its profitability.

Available company forms include the sociedad anónima (a share-based company) and the sociedad de responsabilidad limitada (a limited liability company). Do not choose solely on the basis of the initial cost. Ask a lawyer and an accountant to compare management arrangements, transfers of ownership interests, liability, formal requirements and accounting obligations for your circumstances.

The separation between company and personal assets depends on the structure and the obligations undertaken. Incorporating a company does not remove a personal guarantee you have signed. Nor should you confuse the capital required to incorporate it with the funds needed to buy and operate the franchise.

3. Agree how the owners will make decisions and contribute funds

The franchise agreement governs the relationship with the brand; it does not, by itself, resolve differences between investors. Before committing funds, agree how the company will be governed and which decisions will require joint approval.

With legal advice, document:

• How much each owner will contribute, when and by what means.
• Whether additional funding will be provided as capital or loans from owners.
• Who will approve budgets, borrowing and exceptional expenditure.
• What remuneration anyone working in the business will receive.
• How owners will access accounting and banking information.
• What procedure will apply if a disagreement prevents a decision.

Avoid promises such as ‘we will contribute more if necessary’. Define how additional funds will be requested and what will happen if someone cannot contribute, without assuming that they will automatically lose their ownership interest.

Ask for these agreements to be reflected in the appropriate legal documents. A private agreement should not contradict the company’s deed of incorporation or grant powers that are incompatible with it.

4. Check compatibility with the franchisor’s contract

Before completing the purchase, check whether the contract requires particular owners, ownership percentages or a specific operator to remain in place. An internal change may require the franchisor’s consent even if the company holding the franchise remains the same.

Clarify which changes need approval, how to request it and what the consequences would be of proceeding without permission. Align these rules with the agreements between owners: do not promise to bring in new investors if the contract might prevent it.

Finally, check that the company’s registered name, identification details and authorised representatives are consistent across the purchase documents. Seek a professional review of the powers and approvals needed to enter into the agreement.

Practical conclusion: before signing, bring together three compatible elements: the purchasing company, the agreements between its owners and the franchise agreement. If any one assumes rights that the others do not allow, resolve the discrepancy before paying out any funds.