Personal Guarantees for Franchises in Taiwan: Check Joint and Several Liability, Scope and Release Terms Before Signing

When choosing a franchise in Taiwan, look beyond franchise fees and operational support to the ‘guarantor’ signature box on the final page of the contract. Even if the company takes on the franchise, a separate personal guarantee from its person in charge or a family member may extend the company’s payment risks to personal assets. A healthy franchise community should help prospective franchisees understand this commitment, rather than treat it as a routine signature.

1. Establish whether you are signing as the franchisee, a representative or a guarantor

The same person may sign a contract in different capacities. You might simply be signing on behalf of the company, or you might also be personally guaranteeing its debts. Do not rely solely on the company name on the first page. Search every page for terms such as ‘guarantee’, ‘joint and several’, ‘security’ and ‘debt’, including all appendices and separate undertakings.

Ask the franchisor to specify three things: who owes the payments, who can pursue the guarantor, and who must provide a guarantee. If the franchisor asks a spouse or shareholder to sign, ask for the commercial reason. Do not assume that a family member’s signature merely acknowledges that they have been informed.

Guarantees are governed by Taiwan’s Civil Code. Ordinary guarantees and joint and several guarantees have different legal effects. With a joint and several guarantee, do not assume that the franchisor must pursue the company and exhaust its assets before demanding payment from you personally. Before signing, ask a lawyer qualified in Taiwan to explain, based on the actual wording, the order in which claims may be pursued and the defences available.

2. Turn ‘all debts’ into a checklist you can verify

The main warning sign is not how short the guarantee clause is, but whether it covers ‘all present and future debts’. Such wording can give rise to disputes: beyond the franchise fee, does it include payments for goods, royalties, contractual penalties, damages, interest and recovery costs? Does it also cover amounts owed to designated suppliers?

Ask the franchisor to answer the following questions in writing:

• Which contract does the guarantee cover? Specify the contract’s title, date and parties, rather than broadly covering the entire business relationship.
• Which payments are covered? Separate fixed fees from potential compensation liabilities, and state any exclusions.
• What is the maximum liability? If a cap is agreed, clarify whether it includes interest, contractual penalties and other costs.
• Who can make a claim? Do not assume that a guarantee given to the franchisor necessarily includes or excludes other companies.
• How is liability shared between multiple guarantors? You cannot simply divide the total by the number of guarantors and treat that figure as each person’s maximum liability.

These are points you can seek to negotiate, not protections the law automatically provides. If the franchisor says it ‘never pursues guarantors’, ask for the corresponding limits to be written into the terms rather than relying on verbal reassurance.

3. Check guarantee requirements against franchise disclosure rules

Franchise transactions in Taiwan are subject to specific administrative guidelines, not just rules set by individual brands. The Taiwan Fair Trade Commission’s Guidelines on the Business Practices of Franchisors, together with the Fair Trade Act, address matters such as disclosure of material information, contract review and provision of contract copies. Liability under a guarantee must separately be assessed under the Civil Code and the specific contractual terms.

The guidelines require franchisors to provide material transaction information ten days before entering into a franchise or preliminary franchise relationship, or within a period deemed reasonable in the circumstances or agreed by both parties. This information includes costs before and after opening, restrictions within the franchise relationship, and the conditions and procedures for varying, terminating or rescinding the contract. Personal guarantees are not listed as a separate disclosure item. However, if a guarantee is a condition of taking on the franchise, prospective franchisees should actively ask the franchisor to explain it clearly, along with any related restrictions. A fee schedule alone will not establish the extent of liability.

The franchisor must also allow at least five days for contract review, or a period deemed reasonable in the circumstances. When requesting the contract, ask for the guarantee document and all related appendices at the same time, so that guarantors can review them independently too.

Failure to comply with the relevant disclosure or review requirements may breach Article 25 of the Fair Trade Act if it is sufficient to affect trading order. However, this does not automatically invalidate a guarantee or entitle a guarantor to stop performing their obligations. Administrative breaches and individual civil liability must be assessed separately.

4. Agree how the guarantee ends before you sign

A change in the company’s person in charge, a shareholder’s departure or the closure of the franchise outlet should not be treated as automatically releasing a personal guarantee. Distinguish between two questions: when you stop guaranteeing new debts, and how debts incurred before termination will be settled.

Ask for the contract to specify the guarantee period and whether the guarantor’s separate written consent is required for renewal, additional outlets or changes to trading terms. If you intend to transfer your shares or hand over the business later, agree in advance on the process for replacing a guarantor, the franchisor’s approval criteria and the method of obtaining a written release.

In practice, you can request a settlement procedure: the franchisor provides an itemised statement of outstanding amounts, both parties confirm any disputed sums and payment arrangements, and an authorised person then issues a document releasing the guarantee. That document should clearly distinguish between existing and future debts. A vague statement that ‘the handover is complete’ may leave liability unresolved.

Practical takeaway: Before signing any guarantee, prepare a one-page summary covering ‘who guarantees, which debts, the maximum liability, when cover stops and how release is obtained’. If any answer depends solely on a verbal explanation, request additional written terms before deciding whether to take on the liability.