Buying a Franchise in Lebanon: How to Limit Personal Guarantee Risks

You may choose a suitable brand and set up a company to operate the business, only to find an extra signature required at the end of the franchise agreement under the heading ‘Personal Guarantee’. This signature is not a formality: it may create obligations for you that are separate from the company’s liability. When entering Lebanon’s franchise market, check what you are being asked to guarantee, to whom and for how long, before comparing offers on the initial franchise fee alone.

1. Distinguish between signing as a director and committing as a guarantor

Start by identifying the capacity in which you are signing each document. Signing on behalf of the company as its authorised representative is different from signing in your own name as a guarantor or a jointly and severally liable debtor. Do not assume that using the company stamp settles the matter: the wording of the obligation, the signature block and the identity of the parties all require legal review.

A franchisor may request a personal guarantee because the company is new and has no financial track record. But a bank, landlord or supplier may also ask for one. Compile all proposed guarantees into a single list so that you do not assess each commitment in isolation from the other risks you are taking on.

Create a table showing the creditor, the principal debtor, the obligations covered, the guarantee cap, its duration and the conditions for making a claim under it. Add a column identifying the document in which it appears: it may be part of the main agreement, an annex or a separate application for credit facilities.

Pay particular attention to wording covering ‘all present and future obligations’. This could extend beyond fees due to include damages, expenses or obligations arising after the agreement is amended. Ask your lawyer to explain the effect of each clause, rather than accepting the description of the document as a standard, non-negotiable form.

2. Understand the legal protections available in Lebanon

Lebanon has no comprehensive franchise-specific law, nor a statutory franchise disclosure regime comparable to those in some other countries. Depending on the subject matter, the relationship is governed by the Code of Obligations and Contracts and the Code of Commerce, alongside rules on consumer protection, intellectual property, competition and other applicable legislation.

For guarantees, the Code of Obligations and Contracts is a key reference for assessing their nature, scope and effects. Operating through a limited liability company does not cancel a separate personal obligation signed by one of its shareholders. The company’s constitutional documents, the franchise agreement and the guarantee document should therefore be reviewed together; incorporation alone should not be treated as sufficient protection.

There is also the question of how the relationship is legally classified. Depending on the substance of the arrangement and the law in force, Legislative Decree No. 34 of 1967 on commercial representation may be relevant. Beirut Court of Appeal decision No. 1106/2009 distinguished franchising from commercial representation, but this does not justify assuming the same outcome for every agreement. Seek local legal advice that takes account of the latest legislation and case law.

The Lebanese Franchise Association’s Code of Ethics also includes professional disclosure obligations for members within its scope. However, it is not a generally applicable law or a substitute for reviewing the guarantee. Do not assume that association membership automatically gives you a liability cap or a right to cancel a guarantee you have signed.

3. Negotiate measurable limits

Rather than simply asking for the guarantee to be removed, propose clear alternatives proportionate to the risk the creditor wants to cover. You can structure negotiations around the following points:

• Overall cap: Set a maximum amount and specify whether interest, damages and expenses fall within it or are added on top. Also agree on the currency of the obligation and how amounts will be calculated where different currencies are involved.
• Scope: Limit the guarantee to specified obligations, rather than everything that might arise from the business relationship or other contracts.
• Duration: Ask for an expiry date or a mechanism for gradually reducing the guarantee as obligations are met. Also clarify how claims relating to debts incurred before expiry will be treated.
• Amendments: Require your written consent before extending the guarantee to cover contract renewals, increased credit facilities or new obligations.
• Notice: Ask to be notified of overdue payments, with details of the debt, supporting documents and an agreed period to remedy the situation.

Discuss with your lawyer the effect of describing the guarantee as joint and several, and of any waiver of a guarantor’s defences or rights. Such wording may affect how the creditor can pursue you for the debt; it is not merely administrative language.

Also compare a personal guarantee with alternatives such as a capped cash deposit or a bank guarantee. An alternative is not necessarily cheaper: it may tie up funds or require counter-security, so its terms need to be examined, not just its name.

4. Document your release rather than assuming it

Imagine that you have guaranteed the operating company’s obligations and then sell your shareholding. A transfer of ownership does not necessarily release you from your guarantee. Ask for the transaction documents to include an explicit written release from the creditor, specifying which obligations you are no longer liable for and any amounts that remain outstanding.

The same caution applies when a director changes, a new shareholder joins or the operating company is replaced. Include a review of guarantees in the approvals checklist for every material change, and retain signed copies of amendments, releases and settlement statements.

Before signing the final documents, ask a Lebanese lawyer to summarise the maximum personal exposure that can be determined from them, highlighting any uncapped or conditional elements. If the scope cannot be established, that is a negotiating point to resolve, not a risk to put off until after opening.

Practical takeaway: Do not sign a guarantee unless you can explain its amount, scope, duration and how it ends. Success in the franchise market also starts with a clear distinction between the company’s business risk and your personal obligations.