Buying a franchise: personal guarantees in Portugal

Entering franchising through a company does not mean your personal assets will always be protected. The bank, landlord or franchisor may require guarantees from shareholders or directors. Before agreeing, you need to understand who can demand payment, which debts are covered and when your liability ends. This guide focuses on two types of Portuguese personal guarantee — the fiança and the aval — associated with buying and opening a franchise unit in Portugal.

1. Distinguish the company’s debt from your personal guarantee

When a company takes on an obligation, the debt is, in principle, the company’s. However, if a shareholder also signs as a guarantor under a fiança or an aval, they may take on additional personal liability. Signing as a director on behalf of the company should not be confused with signing in your own name.

A fiança is a personal guarantee under which the guarantor undertakes to fulfil the debtor’s obligation to the creditor if the debtor fails to do so. Its scope depends on the law and the document: it may cover principal, interest and other consequences of default.

For a fiança governed by civil law, the guarantor generally has the benefit of prior enforcement against the debtor’s assets (benefício da excussão prévia). This allows the guarantor to refuse payment until enforcement has been pursued against those assets, subject to the statutory conditions. However, this protection can be waived, particularly where the guarantor agrees to act as the principal payer. Commercial obligations are subject to specific rules on joint and several liability that require legal analysis.

An aval is a guarantee governed by the law on bills of exchange and promissory notes, often given on a promissory note (livrança) linked to financing. It is not equivalent to a fiança: it has its own rules and may allow the creditor to demand payment directly from the guarantor.

Key question: are you signing only on behalf of the company, or are you also putting your personal assets at risk?

2. Understand the applicable Portuguese rules

Portugal has no specific franchising law, nor a legally prescribed pre-contractual disclosure document that is compulsory for all franchise agreements. This does not mean there is no protection or that contractual terms can be imposed without limits.

The applicable legislation includes the Portuguese Civil Code, covering freedom of contract under Article 405, good faith in negotiations under Article 227 and good faith in performance under Article 762. Fianças are regulated by Articles 627 onwards. The Commercial Code may also apply to commercial obligations.

Where standard contract terms are used, Decree-Law No. 446/85, as amended, is relevant. The duties to communicate terms and provide information do not disappear simply because the prospective franchisee is contracting for business purposes. A pre-drafted clause is not automatically beyond legal scrutiny merely because it has been signed.

Avais given on promissory notes are subject to the Uniform Law on Bills of Exchange and Promissory Notes. The European Code of Ethics for Franchising, by contrast, is a self-regulatory instrument, not a Portuguese law that replaces these legal frameworks.

Have the guarantee documents reviewed by an independent legal adviser. Do not assume you have the same rights as a consumer or an automatic cooling-off period.

3. Make an inventory of all guarantees

The risk is rarely confined to a single contract. Before signing, gather the franchise agreement, financing agreement, lease and any separate guarantee documents.

Create a table with one row for each guarantee and record:

• Creditor: who can demand payment.
• Guarantor: who is personally liable and in what capacity.
• Debts covered: whether the guarantee covers a specified obligation or future obligations too.
• Limit: the maximum amount and how interest, costs and penalties are treated.
• Duration: the start date, end date and effects of any extensions.
• Enforcement triggers: the circumstances in which payment can be demanded.
• Release: the conditions and documentation needed to confirm that the guarantee has ended.

Pay particular attention to blank promissory notes (livranças em branco). These may be signed before all the details have been filled in. Ask for a copy of the agreement governing how the note may be completed (pacto de preenchimento) and check which events authorise completion, how the amount is calculated and what notices must be given.

If there are several guarantors, do not assume that each is liable only in proportion to their shareholding. Liability to the creditor may differ considerably from the internal allocation agreed between shareholders.

4. Negotiate limits before committing

Rather than simply asking whether the guarantee is standard practice, ask whether your exposure can be reduced. Propose an explicit overall cap, clearly identified obligations and a duration aligned with the obligation being guaranteed.

Also discuss reducing the guarantee progressively as the financing is repaid, replacing it with another form of security acceptable to the creditor, and requiring consent before it can cover new transactions. These options depend on negotiation; they are not automatic rights.

Ask for the release procedure to be set out in writing. Ceasing to be a shareholder or director does not, in itself, end a personal guarantee. Nor does a private agreement with the buyer of your shareholding replace the creditor’s consent.

Practical takeaway: do not sign a fiança or an aval unless you can explain, in one sentence, to whom you would owe money, for what, up to what amount and until when. If any answer depends on a verbal promise, clarify it in writing before proceeding.