Which business should grant your franchise in Guatemala?

A business may trade under a well-known brand, collect payments through a company and hold its assets in the founder’s name. When franchising, these arrangements need to be clearly structured: the party signing the agreement must be able to grant the rights and provide the promised support. Choosing who will act as franchisor is a decision to make before recruiting investors, and a foundation for building a trustworthy franchise network in Guatemala.

1. Identify who holds each right and responsibility

Before deciding whether you need another company, map out the business’s current structure. Do not start with the name above the door: identify the individuals and legal entities actually involved.

Prepare a table with four columns: item, current holder, evidence and outstanding action. Include:

• The trade mark and trading name.
• Manuals, photographs, designs and training materials.
• IT systems and their terms of use.
• Supplier contracts needed to provide support.
• The staff who will train and support franchisees.
• The accounts and records through which fees and other payments will be collected.

The aim is not necessarily to place everything under one company. It is to check that the future franchisor has the necessary rights and resources, either directly or through valid agreements.

For example, if the founder owns the trade mark but a company will grant the franchise, the fact that the founder is a shareholder is not enough. The relevant authorisation must be documented, and its scope checked to ensure it covers the uses franchisees will be permitted to make. The same applies to software: a subscription or licence for a company-owned outlet does not necessarily allow its use at independently owned premises.

2. Compare using the existing structure with setting up a new company

Franchising does not, in itself, require you to form a new company. The decision should reflect the business’s organisation, risks, resources, and accounting and tax planning.

Using the company that already operates the business may make it easier to access the existing team, experience and processes. However, it is advisable to distinguish the income, costs and commitments of company-owned outlets from those of the franchise programme. Otherwise, it will be difficult to establish the cost of delivering the agreed support.

Setting up a company specifically to grant franchises may help organise responsibilities, bring in shareholders or separate franchise management from the running of company-owned outlets. However, it adds administrative work and requires documented arrangements with those who own the brand, know-how and operational resources.

A newly formed company does not automatically acquire the track record or assets of another business owned by the founder. Nor should it present itself as holding rights it has not yet secured.

Before choosing, ask for a legal and accounting comparison covering incorporation, ongoing administration, taxes, staff employment and intercompany agreements. Avoid deciding solely on the basis of an apparent reduction in risk: separating companies does not replace the need to fulfil the obligations undertaken.

3. Check the legal position in Guatemala

Guatemala has no specific, comprehensive franchise law or mandatory pre-contractual disclosure regime equivalent to those found in some other countries. A franchise agreement is treated as an atypical commercial contract, governed by the Commercial Code, Decree 2-70, with the Civil Code, Decree-Law 106, applying on a supplementary basis.

Article 669 of the Commercial Code sets out the principles of truth as known to the parties and good faith for interpreting and performing commercial obligations. Correctly identifying the party offering and granting the franchise is consistent with those principles.

The Industrial Property Law, Decree 57-2000, is relevant to rights over the trade mark and other protected elements. A lawyer should review the chain of authorisations where the rights holder and franchisor are different parties.

Also check the registration and tax documentation applicable to the chosen individual or company: their status with the Commercial Registry, their identification with Guatemala’s tax authority, SAT, and the authority of the person who will sign. Registering a company does not amount to registering or approving a franchise.

The QFA Code of Conduct is an association code, not national law. Its principles include holding the necessary intellectual property rights and undertaking clear obligations towards franchisees.

4. Prepare a single franchisor information sheet

Once you have chosen the structure, compile an internal information sheet setting out the legal name, tax identification, registered address, representative, basis of their authority and documents evidencing the rights being granted.

Add who will issue invoices, who will receive payments and who will provide each service. If other companies are involved, document their roles without diluting the franchisor’s contractual responsibility.

Cross-check this information against proposals, contracts and payment instructions. Any discrepancy must be explained and resolved before accepting money or signing.

Practical conclusion: do not set up another company simply as a matter of course. First identify the rights involved, choose the party capable of fulfilling the obligations, and document how it will access the resources needed to grant the franchise.