Multi-unit franchising in Guatemala: how to grow in stages

When a prospective franchisee proposes opening several outlets, it is easy to mistake an expansion opportunity for proven capacity. If you are franchising an existing business in Guatemala, it is worth separating approval for the first unit from any future openings. A well-designed multi-unit arrangement allows growth within the franchise network without committing either party in advance to more outlets than they can support.

1. Distinguish operating several units from granting sub-franchises

A multi-unit franchisee operates several outlets authorised by the franchisor. This does not mean they can sell franchises to third parties, bring independent operators into the brand or freely transfer their rights.

This distinction should be set out in writing from the initial proposal. If the prospective franchisee intends each outlet to belong to a different company, identify which entity will sign each agreement, who will take on the obligations and what guarantees will be required. Having shareholders in common does not automatically make separate companies a single franchisee.

Before negotiating a timetable, prepare a summary answering these questions:

• Who will own and operate each outlet?
• Does the agreement authorise one unit or commit the parties to additional openings?
• Will each opening require written approval and its own documentation?
• Is granting rights to third parties prohibited without express authorisation?

Guatemala has no specific franchise law or mandatory franchise-specific pre-contractual disclosure regime. The contractual framework rests on the Commercial Code, Decree 2-70, supplemented by the Civil Code, Decree-Law 106. The Industrial Property Law, Decree 57-2000, is also relevant: it governs trade mark licensing and, unless otherwise agreed, a licence cannot be assigned and does not permit sublicensing. Authorisation for several outlets should therefore not be drafted as open-ended permission to bring in other business operators.

2. Replace promises of openings with verifiable stages

You do not need to commit to the entire expansion when signing the first agreement. You can negotiate a first unit and set conditions for considering subsequent openings. Alternatively, you can agree a development programme with specific obligations. These are different commitments: a commercial expectation should not be presented as an established contractual right.

Define the stages using evidence that both parties can verify. For example:

• First unit operating consistently: compliance with standards throughout an agreed assessment period.
• Team ready: a manager identified for the new outlet and sufficient staffing cover for the existing one.
• Resources confirmed: a documented budget and financing for the next opening, without draining capital from the current operation.
• Obligations up to date: payments and any contractual issues reviewed before expansion is authorised.

Avoid vague conditions such as ‘satisfactory results’. Specify what will be measured, which documents will be used, who will assess them and when they will respond. Financial indicators should use verifiable data and account for all costs; higher sales alone do not demonstrate the capacity to sustain another outlet.

The assessment should also consider the franchisor. If you cannot support another opening, you should not push for a timetable that relies on support you cannot provide.

3. Document how the units relate to one another

Ask a Guatemalan lawyer to structure the relationship between the development agreement, if there is one, and the agreements for individual outlets. The aim is not to accumulate documents, but to avoid contradictions over what has been authorised and what remains conditional.

Settle the following points:

Individual authorisation. Identify each unit, its operator and the approval procedure. Signing an initial agreement should not inadvertently be interpreted as permission to open at any location.

Breaches across outlets. Decide whether a problem at one unit will only suspend new openings or could also affect other agreements. Do not assume that a breach automatically extends to the entire relationship; define its scope, severity and the procedure to follow.

Programme delays. Distinguish between delays attributable to the franchisee, the franchisor and external circumstances. Set out how a timetable review should be requested and who may approve it.

End of development rights. Clarify what happens to units already operating if the right to open more ends. Losing a future opportunity does not necessarily mean losing an existing authorisation.

4. Make a formal decision before each opening

Use a concise review file to inform the decision: a report on existing units, available staff, resources for expansion, outstanding issues and the franchisor’s capacity to provide support.

Based on that information, record one of three decisions: approve, defer subject to specific conditions, or reject in accordance with the agreement. Give the reasons in writing, and do not let informal messages or promises from the sales team replace formal approval.

The QFA Code of Conduct promotes sufficient experience, financial stability and delivery of the support promised. It is an industry association benchmark, not Guatemalan law or government authorisation to expand.

Practical conclusion: before promising several franchises to the same person, define who will operate each outlet, what evidence will justify the next opening and how the decision will be documented. Growth should be earned one unit at a time.