Advertising Funds for Franchises in Guatemala

When franchising a business in Guatemala, collecting advertising contributions brings responsibilities that go beyond promoting your own outlet. Before accepting any money, you need to define who decides how it is used, which expenses it covers and how contributors will be kept informed. Clear management protects trust across your franchise network and prevents the fund from being treated as income available to meet any of the franchisor’s needs.

1. Define the fund’s purpose and limits

The fund should have a specific objective: to finance activities that benefit the franchise network within the agreed scope. Simply writing ‘advertising and marketing’ is not enough; that phrase leaves room for very different interpretations.

Draw up a list of authorised expenses. These might include photography, campaign design, advertising space, maintenance of promotional web pages and performance measurement. Distinguish these from costs that each outlet must cover itself, such as printing materials for an exclusively local event.

Also identify exclusions. Advertising to recruit new franchisees primarily supports the franchisor’s expansion and should not automatically be charged to a fund intended to attract consumers. The same applies to travel, general salaries and internal celebrations.

If administrative costs are to be allowed, specify which ones, how they will be documented and what limits will apply. The fund must not serve as a pot of money to cover shortfalls in the franchisor’s own business.

2. Document the rules within Guatemala’s legal framework

Guatemala has no specific franchise law or general mandatory pre-contractual disclosure regime dedicated to franchising. Franchise agreements are structured under the Commercial Code, Decree 2-70, with the Civil Code, Decree-Law 106, applying where relevant to fill gaps. The absence of specific legislation does not remove contractual obligations or allow contributions to be managed in disregard of the agreed terms.

The Industrial Property Law, Decree 57-2000, regulates trademark protection and use; it does not establish compulsory registration of advertising funds or a general authorisation to operate franchises. The Consumer and User Protection Law, Decree 6-2003, is also relevant to public-facing campaigns, particularly the information and advertising presented to consumers.

With advice from a local lawyer, include the following in the agreement or an annex accepted by the parties:

• The fund’s purpose and permitted expenses.
• Who is responsible for managing it and their authority to engage suppliers.
• The procedure for approving the budget and any changes to it.
• The frequency and content of reports.
• How unused balances and outstanding commitments will be handled.
• The rules for changing how the fund operates.

Clarify whether the fund will simply be accounted for separately or will have an additional legal structure. Calling it a ‘fund’ does not, in itself, create a legally separate pool of assets. Its accounting and tax treatment should be reviewed with an accountant before contributions are collected.

3. Establish verifiable decision-making and controls

Appoint someone to take responsibility for the budget and a separate person or body to approve significant expenditure. Even if both functions initially sit within a small organisation, keep a record of who requested, authorised and paid for each service.

You can establish an advisory committee with franchisee participation. Define whether its views are recommendations or binding decisions, how members are selected and how meetings are recorded. Avoid promising participation if, in practice, no one will be able to influence decisions or receive explanations.

When engaging an agency connected to the franchisor, disclose the relationship and document the service, its price and the reasons for choosing that agency. This helps address concerns about possible personal gain funded by shared contributions.

Keep separate accounting records and retain budgets, invoices, contracts, proof of payment and deliverables. A dedicated bank account can make transactions easier to track, but it is no substitute for proper accounting, nor is it in itself a specific legal requirement for franchises.

4. Explain how advertising benefits are distributed

A shared campaign does not guarantee equal sales for every outlet. However, there should be an understandable basis for allocating activity: geographical coverage, commercial objectives, outlet locations and opportunities to reach customers.

For example, a digital campaign may benefit outlets within its target area more than others. Before launching it, explain why that coverage was chosen and how it fits into the overall plan. Do not promise that each franchisee will receive advertising worth exactly the same as their contribution unless you can genuinely deliver this and it is included in the agreed terms.

Coordinate promotions too: participating outlets, validity periods, availability, restrictions and responsibility for handling enquiries. An offer published without coordination can lead to consumer complaints and tensions between outlets.

5. Provide useful reporting and accountability

Provide reports that allow contributors to compare the budget with actual spending. Include the opening balance, contributions received, expenditure by campaign, outstanding commitments and closing balance. Accompany the figures with observable results, distinguishing between advertising reach, enquiries and attributable sales where reliable measurement is available.

Do not present estimates as verified results. If a campaign fell short of its objective, explain what was learnt and what will change.

Practical conclusion: before collecting the first contribution, prepare the fund’s rules, a budget and a reporting template. If you cannot explain how each expense will be incurred and justified, there is still preparatory work to do.