Franchising in Guatemala: set clear limits on confidentiality

Before buying a franchise in Guatemala, you may have to sign a confidentiality agreement to access recipes, processes or financial results. Protecting this know-how is reasonable in franchising, but an overly broad clause could prevent you from assessing the investment with your advisers. Set clear limits from the first exchange of documents, rather than waiting until you negotiate the final contract.

1. Understand what protection the law provides

Guatemala has no specific franchise law. A franchise agreement is treated as an atypical commercial contract: it draws on the Commercial Code, with the Civil Code applying on a supplementary basis. Freedom of contract operates within legal limits; it does not mean that every term you sign is necessarily valid and enforceable.

The Industrial Property Law, Decree 57-2000, governs relevant matters such as trade marks and the protection of trade secrets. However, it neither prescribes a comprehensive set of mandatory terms for franchise agreements nor removes the need to define their confidentiality obligations.

There is also no specific pre-contractual franchise disclosure regime that generally requires an offering circular to be provided thirty days in advance. Do not confuse requirements in other countries with obligations under Guatemalan law.

Distinguish between the legal protection of a trade secret and a contractual duty of confidentiality. Information labelled confidential does not automatically meet the legal requirements for a trade secret. Ask a local lawyer to review both aspects before accepting liability.

2. Define the information and its permitted use

Avoid wording that covers “everything related to the brand” without qualification. Ask for clearly identifiable categories: internal procedures, formulas, non-public commercial terms, technical documentation or financial statements supplied to assess the purchase.

The agreement should clarify how protected information will be identified, including information disclosed verbally. You could propose that relevant verbal disclosures be confirmed in writing afterwards to reduce disputes over their content.

Negotiate explicit exclusions for information that:

• Was already public through no breach on your part.
• You legitimately knew before receiving it.
• You lawfully obtained from a third party without a duty of confidentiality.
• You developed independently, without using protected material.

You should be able to support these exclusions with documents, so keep records of when information was received and retain different versions.

Define the authorised purpose too. Before entering into the agreement, you need to use the documentation to assess the investment and structure the transaction. After signing, permitted use should cover running the franchise outlet in accordance with the agreement. Permission limited to “reviewing the proposal” could prove insufficient once the business is operating.

3. Preserve access to advisers and protect your own information

Confidentiality should not force you to make a decision without professional assistance. Agree that you may share documentation with lawyers, accountants and prospective finance providers who need access to it, subject to appropriate confidentiality duties.

Clarify whether notifying the franchisor is sufficient or whether prior consent is required. If consent is needed, propose a procedure and a response deadline so that your assessment cannot be held up indefinitely.

It is also worth setting out how to respond to a legally binding request from an authority: what information will be disclosed and when the franchisor should be notified, provided such notification is legally permitted.

Protection can be mutual. During the selection process, you may provide details of your assets, budgets, location strategies or information about your business partners. Ask the franchisor to limit its use to assessing and managing the relationship, and to control who can access it.

For example, if you share your own forecast to demonstrate viability, agree whether it may be circulated among other franchise outlets or used in sales presentations. Do not assume that confidentiality terms covering the brand’s documents also protect yours.

4. Review duration, return of information and consequences

Check when the obligation takes effect and what happens if you ultimately decide not to buy. Distinguish ordinary commercial information from trade secrets: they may require different forms and periods of protection, depending on their nature and the applicable law.

Set out how files must be returned or deleted, and which copies your advisers may retain to meet legal or professional obligations, while keeping them confidential. Avoid promising complete deletion if you cannot achieve this in automatic backups.

Review the consequences of a breach as well. Depending on the wording, a fixed penalty, additional damages and other remedies could apply cumulatively; ask your lawyer to assess their scope and validity. Distinguish confidentiality from non-compete obligations: protecting documents does not mean accepting any restriction on working in another business.

Practical takeaway: before receiving sensitive documentation, put in writing what you must protect, what you may use it for, who you may share it with and what will happen when the assessment or the relationship ends.