Franchising in Guatemala: limit your personal guarantees

Buying a franchise through a company does not mean your personal assets are always protected. If you sign a guarantee in favour of the franchisor, you could become personally liable for debts that are not your own. In franchising, it is essential to distinguish between investing in a business and guaranteeing its obligations. This guide explains how to assess that exposure before committing to a franchise in Guatemala.

1. Identify who is liable and which assets are at risk

Start by separating three roles: the company buying the franchise, the person signing as its representative and whoever guarantees performance of its obligations. The same person may fill all three roles, but the responsibilities are not the same.

Signing on behalf of a company does not, in itself, mean personally guaranteeing its debts. However, the contract may include a second signature or a clause making the representative or a shareholder a guarantor or a jointly and severally liable debtor.

Look for wording such as the following in the contract and its annexes:

• ‘Guarantor’, ‘co-debtor’ or ‘jointly and severally liable debtor’.
• ‘Unlimited personal guarantee’.
• ‘All present and future obligations’.
• ‘Waiver of the rights to require prior enforcement against the principal debtor and division of liability between guarantors’ (beneficios de excusión y división).
• ‘The guarantee survives termination’.

These terms do not all mean the same thing. Ask a lawyer to explain whether the creditor would have to pursue the company first or could proceed directly against you. Check promissory notes and separate documents too: the risk is not always found in the clause headed ‘guarantees’.

2. Understand Guatemala’s legal framework

Guatemala has no specific franchise law or general mandatory pre-contractual disclosure regime for franchising. Nor is there a mandatory requirement to register the agreement as a franchise, equivalent to those in countries with specific franchise regulation. Company registration and intellectual property registration requirements are separate matters.

The relationship is governed primarily by the Commercial Code, Decree 2-70, and, where supplementary rules are needed, by the Civil Code, Decree-Law 106. The latter contains rules on obligations, joint and several liability, and guarantees that are relevant when reviewing personal guarantees. The Industrial Property Law, Decree 57-2000, governs aspects of trade marks and licensing, but does not set a special limit on the liability of someone buying a franchise.

Do not therefore assume that franchisees are automatically protected against a broadly worded guarantee. Your specific rights and defences depend on the document you sign and the applicable law. Nor should you confuse commercial guidance or an association’s voluntary code with a general legal obligation.

3. Negotiate scope, amount and duration

The question is not simply whether you will accept a guarantee, but which obligations it will cover and how far it will extend. A clearly limited guarantee lets you assess the risk; an open-ended reference to any future debt makes that difficult.

Propose that the document specifies:

• Obligations covered: for example, certain contractual payments rather than any obligation connected directly or indirectly with the relationship.
• Maximum liability: clarify whether the cap includes interest, penalties, recovery expenses and legal costs, or whether these could be added on top.
• Duration: set an expiry date or an objective condition for expiry, and specify how debts incurred beforehand will be treated.
• Subsequent changes: ask for any material increase in your exposure to require your written consent.
• Release: provide for a documented release once the agreed conditions have been met.

Avoid allowing a guarantee for one outlet to extend to other premises, new companies or future contracts without your express agreement. If there are several guarantors, do not assume that each is liable only in proportion to their shareholding.

4. Assess alternatives and keep records

Ask whether the franchisor would accept a guarantee limited to the initial trading period, a gradual reduction following a track record of meeting obligations, or a guarantee restricted to specific obligations. These are negotiating options, not automatic rights.

Compare their costs: a deposit ties up cash; a bank guarantee may involve fees and require security; pledging a particular asset can also put it at risk of loss. Switching instruments does not necessarily eliminate the risk.

Before signing, prepare a summary identifying the creditor, the guarantor, the obligations covered, the liability cap, the duration and the conditions for release. Check it against all the documents and keep complete copies. If the business changes hands or the arrangement ends, do not assume you have been released: request written confirmation from the creditor.

Practical takeaway: decide how much of your personal wealth you are willing to put at risk before negotiating. Do not sign a guarantee whose scope you cannot clearly explain, and have a lawyer review the contract and its annexes together.