Buying a franchise: limit your personal liability

Buying a franchise means joining a business network, but the financial risks can still affect you personally. Even if you operate through a Dutch private limited company (bv), contractual commitments can put your personal assets at risk. Banks are not the only parties that may ask for personal security: franchisors may do so too. Before signing, establish who is taking on each obligation, what you are personally liable for and when that liability ends.

1. Decide who will be the contracting party

Start not with the signature, but with the name at the top of each document. Will the franchisee be you personally, your general partnership (vof), or a bv that has yet to be incorporated? That choice helps determine who must pay the debts if the outlet underperforms.

With a sole proprietorship (eenmanszaak), there is no separation between business and personal assets. In a general partnership (vof), each partner can generally be held liable for the partnership’s entire debt. An internal agreement that your business partner will cover certain costs does not automatically protect you against creditors.

A Dutch private limited company (bv) is a separate legal entity and is normally responsible for its own debts. However, it does not offer complete protection. Personal suretyships, certain guarantees and directors’ liability can still expose you to personal liability.

Review all the documents together: the franchise agreement, financing arrangements, supplier credit agreements and any payment plans. Always check:

• the debtor’s full name and legal form;
• the capacity in which you are signing;
• references to separate security documents;
• obligations that also apply to directors or shareholders.

Take particular care with agreements entered into on behalf of a bv in formation. Special liability rules apply. Have a legal adviser ensure that incorporation, signing and subsequent ratification are properly coordinated; planning to set up a bv does not automatically cancel an obligation you have already taken on personally.

2. Distinguish between suretyship, guarantees and joint liability

A request to ‘just add your personal signature’ can have different legal consequences. The document’s title is not decisive: its contents determine what you are liable for.

Under a suretyship (borgstelling), you undertake to a creditor to fulfil another party’s obligation, such as that of your bv. A joint and several co-debtor can generally be pursued directly for the full debt. A guarantee (garantie) may, depending on its wording, create an independent payment obligation. Do not treat these terms as interchangeable.

Next, examine the scope of the security. Does it cover only a specific loan, or all current and future obligations towards the franchisor? The latter may include overdue franchise fees, interest, damages and contractual penalties.

For each creditor, list the maximum amount, the obligations covered, the duration and the conditions for release. Add together your personal exposure under the various documents. An amount that seems acceptable on its own may become an unacceptable risk when combined with other security commitments.

Also ask whether interest and debt recovery costs fall within the maximum. An amount presented as a cap does not necessarily limit all additional costs.

3. Understand the statutory protections — and their limits

The Netherlands has a Franchise Act (Wet franchise), incorporated into Book 7, Title 16 of the Dutch Civil Code. Among other things, it imposes disclosure obligations before a franchise agreement is concluded. The franchisor must provide the draft agreement, including its annexes, and information about the fees, investments and other financial contributions required of you.

Any requirement for personal security should therefore not emerge only at the final signing stage. Request the full draft of every suretyship or guarantee as part of your legal due diligence. Article 7:915 of the Dutch Civil Code also requires you, as a prospective franchisee, to take reasonable steps to avoid entering into an agreement on the basis of incorrect assumptions.

The Franchise Act does not impose a general ban on personal security. Its validity and consequences also depend on the general rules of the Dutch Civil Code, including those governing suretyship.

Additional protections apply to private individuals acting as sureties. Whether you qualify, however, depends on your position and the purpose of the suretyship. A director-shareholder may fall outside those protections in certain circumstances.

Consent from a spouse or registered partner may also be required. There are exceptions, including for certain transactions in the ordinary course of a bv’s business. Have this assessed by a legal adviser; do not assume that consent is either always or never required.

4. Negotiate limits and release terms

First ask why personal security is needed and what specific risk it is intended to cover. Then negotiate a lower cap, a limited term or a gradual reduction as obligations are demonstrably paid off.

Also record what happens if you sell your shares, transfer the outlet or terminate the franchise agreement. None of these events automatically releases you from every personal security commitment. Ask the relevant creditor for an explicit written release.

Have verbal assurances such as ‘we would only pursue you in exceptional circumstances’ translated into clear, verifiable contractual terms. Discuss broadly worded clauses with an independent legal adviser before signing.

Practical conclusion: sign only when you know, for each document, who the debtor is, how much of your personal wealth is at risk and how you can obtain a definitive release from the obligation. A bv is useful, but clear limits and a written release are at least as important.