Buying a franchise with business partners in Mexico: what to agree

Buying a franchise with relatives, friends or investors allows you to pool resources, but also means sharing decisions and risks. In franchising, the agreement with the brand does not replace agreements between the investors. Before committing any money, define each partner’s role and check that your proposed arrangements are compatible with the franchisor’s terms.

1. Decide who will buy the franchise and who will provide the money

The first question is not how much each person will contribute, but who will be named as the franchisee. If an individual signs the agreement, do not assume that the other contributors automatically acquire rights in relation to the franchisor. If a company signs, you need to review its incorporation documents, who is authorised to represent it and its legal capacity to take on the agreed obligations.

Mexico’s General Law on Commercial Companies (Ley General de Sociedades Mercantiles) governs the main forms of commercial company in the country. Choosing a structure requires legal and tax advice: it affects management, ownership interests and liability. Incorporating a company does not remove any personal obligations someone accepts through guarantees or other documents.

Draw up a table identifying:

• Who will contribute money, assets or work.
• How much each person will contribute and when it is due.
• What ownership stake they will receive and how it will be documented.
• Whether the money will be provided as capital or a loan.
• What happens if a promised contribution is not made.

Do not treat a capital contribution and a loan from a business partner as equivalent. The terms on which the money can be recovered, and the implications of each arrangement, differ. It is also worth separating payment for working in the business from the right to receive a share of its profits as an owner.

2. Check the agreement between partners against the franchise agreement

Mexico has specific franchise regulations. Article 245 of the Federal Law on the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial) requires the franchisor to provide information about the state of its business at least thirty days before entering into the agreement. Article 246 stipulates that the agreement must be in writing and contain certain minimum provisions.

This framework governs the relationship with the franchisor, but does not in itself determine how the partners will vote, who will cover a funding shortfall or how internal disagreements will be handled. The company’s articles of association, agreements between the partners and the franchise agreement therefore need to be aligned.

Before signing, give your lawyer the complete documents and ask them to check in particular:

• Whether the brand requires the partners to be identified or approved.
• Whether a change in ownership interests or control requires authorisation.
• Who may represent the company in dealings with the franchisor.
• Whether personal guarantees are required and who must provide them.
• Whether the proposed obligations are compatible with the powers of the person responsible for managing the company.

These conditions depend on the agreement; do not assume either that they are mandatory or that they do not apply. An internal agreement does not automatically oblige the franchisor to accept new partners or representatives.

3. Establish how decisions will be made and additional funding requested

An equal ownership split may seem fair, but it can also lead to deadlock. Define which decisions fall to the person managing the company and which require the partners’ approval, using the appropriate legal mechanisms for your chosen company structure.

Distinguish day-to-day decisions from exceptional ones. Paying utility bills does not carry the same risk as taking on debt, providing guarantees or committing to further investment. For the latter, agree on limits, documentation and voting majorities, without conflicting with the articles of association or applicable law.

You also need a procedure for requesting additional funds. It should specify who must justify the need, what information they must provide, how approval is obtained and whether the money will be contributed as capital or a loan. Avoid open-ended promises such as ‘we will all put in whatever is needed’.

For example, if two partners hold equal stakes and one cannot meet an additional contribution, a reduction in their stake should not be improvised. Any consequences must be legally reviewed, agreed and validly documented.

4. Ensure information is shared and carry out a final review

Even if only one person manages the business, the others need enough information to monitor their investment. Agree on a reporting schedule covering sales, expenses, debt, outstanding obligations and transactions with related parties. Establish access to documents and accountability procedures suited to the company structure.

Before buying, check that everyone has received the same budget and understands the obligations being taken on. Also review how you will resolve a decision-making deadlock and what will happen if a partner becomes incapacitated or dies, without assuming that the brand will automatically accept any replacement.

Practical conclusion: do not commit your investment until each participant’s contributions, decision-making powers and responsibilities have been documented. Trust between business partners works best when their internal agreements and the franchise agreement are consistent.