Franchises in Guatemala: decide who will sign as the franchisee

Before buying a franchise in Guatemala, decide who will acquire the rights and take on the obligations: you as an individual or a company. This is not a detail best left until after signing. In franchising, this decision determines who can operate under the brand, receive invoices and be held responsible under the contract. It also avoids a situation where a restructuring planned from the outset ends up requiring additional approval.

1. Distinguish the investor from the contracting party

The person providing the money does not necessarily have to be named as the franchisee. You can invest in a company that enters into the franchise agreement, while an authorised person signs on its behalf and someone else manages the premises.

It is worth separating four roles:

• Investor: provides the funding and shares in the returns under the relevant agreements.
• Franchisee: the individual or legal entity that acquires the contractual rights and takes on the obligations.
• Representative: signs on behalf of the franchisee, within the scope of their authority.
• Operations manager: runs the business and handles the day-to-day relationship with the brand.

One person may perform several roles, but the contract should not blur the distinctions between them. If you sign personally as the franchisee, subsequently forming a company does not automatically make that company the contracting party.

Before deciding, ask a lawyer and an accountant to compare the liability, administration, tax obligations and ongoing costs of each option. Nor does using a company, in itself, remove any personal commitments you expressly accept.

2. Understand why changing the franchisee requires care

Guatemala has no specific franchise law or general mandatory pre-contractual disclosure regime for franchises. The relationship is governed by the contract and the applicable general rules; you should not assume there is a special procedure allowing you to replace the franchisee freely.

The Commercial Code, Decree 2-70, sets out the commercial legal framework. Article 280 excludes commercial franchises from the provisions of the chapter on commercial agents, distributors and representatives. The Civil Code, Decree Law 106, and the Industrial Property Law, Decree 57-2000, also apply.

The latter is particularly relevant when deciding who will enter into the agreement: the rules on trade mark licensing also apply to franchises. The licence must be in writing and, unless otherwise agreed, cannot be assigned and does not permit sublicensing.

Signing in your own name with the intention that a company will later run the business may therefore create a mismatch between the authorised rights holder and the actual operator. The precise consequences will depend on the agreement and the proposed operating arrangements. Do not assume the two are interchangeable, even if you fully control the company.

3. Check identities and signing authority before signing

Once you have chosen the franchisee, check that its identifying details are consistent throughout the transaction. Simply using the establishment’s trading name is not enough: the contracting individual or entity must be correctly identified.

If the franchisee will be a company, ask your local adviser to check:

• Its incorporation and registration, and the documents proving its existence.
• Its exact legal name and relevant tax identification details.
• The appointment or power of attorney of the person signing, and the scope of their authority.
• Any internal approvals required under its corporate documents.

Carry out the same checks on the other party: identify which entity is granting the franchise and whether its signatory has authority to bind it. The person who negotiated with you may not have authority to sign the final agreement.

Make sure the administrative paperwork is consistent too. The contract, invoicing and account used to make payments should reflect a coherent structure. Where different individuals or entities are involved, ask your accountant to document the reason for those transactions and how they should be treated. Avoid making payments interchangeably from personal and company accounts without clear supporting documentation.

4. If a company will be formed later, agree the transition

The most straightforward approach is usually to have the intended long-term franchisee in place before making a commitment. If that is not feasible, raise the situation with the franchisor before signing and negotiate a written arrangement reviewed by your lawyer.

That arrangement should identify who will sign initially, which company may replace them, what documents will be required and whether there will be any fees or a fresh assessment. It should also clarify when the change takes effect and who remains responsible for earlier obligations.

Ask explicitly whether the replacement releases the original signatory or whether they retain any liability. Permission to operate through a company does not necessarily amount to a full assignment of the contract or a release from obligations.

Practical conclusion: choose the intended long-term franchisee before signing, verify the representatives’ authority and document any planned change. Do not base your purchase on an informal promise that changing the franchisee’s name later will be straightforward.