Franchising in Guatemala: limit your personal guarantees

Buying a franchise through a company does not mean your personal assets are protected from every liability. The franchisor may require an additional guarantee as a condition of entering into the agreement. In franchising, it is important to distinguish between investing in the business and taking personal responsibility for its obligations. Before agreeing, identify exactly what you would be guaranteeing and negotiate limits you can understand and accept.

1. Identify the capacity in which you are signing

Review not only the franchise agreement, but also its schedules and any guarantee documents. The same person may sign as a representative of the company and also give a personal undertaking. These are separate commitments and must be reviewed individually.

Look for terms such as ‘fiador’ (surety), ‘fiador solidario’ (joint and several surety), ‘codeudor’ (co-debtor) or ‘garante’ (guarantor). Do not treat them as interchangeable: ask a Guatemalan lawyer to explain the implications of each, when a claim could be brought against you and which defences or legal protections you would be waiving.

For each document, list four key details:

• Who bears the principal obligation.
• Who provides the guarantee and in what capacity.
• Who can enforce it.
• Which obligations it secures.

Do not confuse a guarantee given to the franchisor with one given to a bank or the landlord of the premises. Although all may help you open the same outlet, they may have different beneficiaries, amounts and release conditions. Nor should you assume that selling or giving up your shareholding automatically ends a guarantee you have already signed.

2. Apply the correct Guatemalan legal framework

Guatemala has no franchise-specific legislation or special mandatory pre-contractual disclosure regime for franchise transactions. The relationship is governed by the general provisions of the Commercial Code, Decree 2-70, and the Civil Code, Decree-Law 106, as applicable. The Industrial Property Law, Decree 57-2000, governs trade marks and their licensing, but does not replace the need to review a personal guarantee.

You should therefore not assume that special protections for franchisees automatically limit the obligations you guarantee. The extent of your commitment will depend on the legal instrument used, its wording and the applicable general provisions.

Commission a specific review of provisions on joint and several liability, waivers and the conditions for making a claim. Also ask which formalities each document must satisfy. If the agreement uses a foreign template, have its suitability for Guatemala assessed: a clear translation does not necessarily make all its legal implications apparent.

The practical advice is simple: do not accept a commercial explanation of the guarantee as a substitute for analysing what you will actually sign.

3. Negotiate the amount, scope and duration

A guarantee described as securing ‘all present and future obligations’ may leave you with exposure that is difficult to calculate. Propose clear limits, without assuming that the franchisor is obliged to accept them.

First, identify what is covered. Does the guarantee cover only unpaid fees, or also interest, penalties, compensation and recovery costs? Ask for clarification on whether there is an overall cap and whether ancillary amounts fall within or outside it. A cap is less useful when assessing your exposure if a substantial part of the risk falls outside it.

Second, specify the agreement and outlet covered. Avoid allowing a guarantee for your first outlet to extend inadvertently to future openings or to the obligations of other companies connected with you.

Third, agree its duration. Distinguish between the period during which guaranteed obligations may arise and the conditions for making claims in respect of outstanding obligations. Simply stating an end date is not enough without explaining what happens when that date arrives.

Finally, ask what will happen if the main agreement is amended. Propose that any increase in the amount, duration or scope of your guarantee should require your express consent. Also consider whether the guarantee could be reduced gradually as verifiable conditions are met.

4. Define how you will be released

Release from the guarantee deserves as much attention as signing it. Negotiate a procedure for requesting release, checking outstanding balances and obtaining written confirmation from the relevant creditor.

Clarify what would happen if you sold your shareholding, stopped managing the outlet or the franchisee was replaced. Do not confuse approval of these changes with release from your personal obligation: ask for both matters to be addressed expressly.

Keep a separate file containing the guarantee, any amendments, correspondence and documents confirming its discharge. Before committing, calculate your combined exposure to the franchisor, bank and landlord, without counting the same debt twice.

Practical conclusion: do not sign a personal guarantee unless you can explain what it covers, your maximum exposure, how long it lasts and which document will confirm your release.