How Can You Limit a Personal Guarantee When Buying a Franchise?

When joining a franchise network, you should look not only at the fees your company will pay, but also at the security you are being asked to provide personally. A guarantee section on the final page of the franchise agreement, a separate undertaking or a promissory note provided as security could create liabilities far beyond your investment budget. This guide focuses on understanding and limiting the scope of a personal guarantee given to the franchisor before you sign.

1. Distinguish between signing for the company and accepting personal liability

Buying a franchise through a Turkish limited liability company or joint-stock company does not automatically make the company’s contractual debts the personal debts of its shareholders. However, if a shareholder or director also acts as a guarantor, their personal assets may be at risk within the legally valid scope of that guarantee. Incorporating a company therefore does not remove the effect of any personal security you sign.

Start by identifying every place where a signature is required. The main agreement, any supplementary agreement, payment schedule, guarantee document and any promissory note should be reviewed together. Next to each signature, write this question: Am I taking on an obligation here on behalf of the company, or in my own name?

Pay particular attention to wording such as:

• “Joint and several guarantor” or “joint debtor and joint and several guarantor”.
• “All existing and future debts”.
• “Irrevocable guarantee” or “payment on first demand”.
• “Covers all renewal periods of the agreement”.

These expressions do not all have the same legal effect. A document headed “guarantee” is not necessarily an independent guarantee in substance. Similarly, an aval — a guarantee given on a negotiable instrument — should not be treated as an ordinary personal guarantee clause. Ask your lawyer to explain the legal nature of each document separately.

2. What protections apply to personal guarantees in Türkiye?

Türkiye has no standalone franchise-specific law, mandatory pre-contractual disclosure document or general franchise agreement registration system. This does not mean that franchise agreements are unregulated. Depending on the substance of the relationship, the applicable legislation includes the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102, the Law on the Protection of Competition No. 4054 and the Industrial Property Code No. 6769.

The key rules for personal guarantees are the suretyship provisions of the Turkish Code of Obligations. Under Article 583, a suretyship must be in writing and state the maximum amount for which the guarantor is liable and the date of the guarantee. The guarantor must write the maximum amount and date in their own handwriting. If they are assuming joint and several liability as guarantor, that status, or wording with the same meaning, must also be handwritten.

Article 584 generally requires the spouse’s written consent, given before or at the latest when the guarantee is entered into. However, there are statutory exceptions, including guarantees relating to a business or company given by the owner of a business registered in the trade registry, or by a company’s shareholders or directors. Do not assume: “I am married and my spouse did not sign, so I cannot be liable.”

Article 603 extends the protections concerning formal requirements, capacity to act as guarantor and spousal consent to personal security provided by individuals under other names. Do not assume that these protections automatically apply in the same way to every form of security; negotiable instruments in particular require separate review.

3. Negotiate the maximum amount and the debts covered

Assess the guarantee amount separately from the investment budget presented by the franchisor. Your opening costs may appear limited, while the guarantee may be drafted to cover accrued royalties, amounts owed for products, interest and contractual penalties. Providing several forms of security for the same debt can also make the exposure harder to understand.

Ask the franchisor to itemise the claims it wants secured. Then negotiate the following limits in writing:

• Source of the debt: The guarantee should cover only the clearly identified franchise agreement, without extending to debts of other outlets or associated companies.
• Maximum liability: The overall cap should be clear, with the treatment of interest and costs within that cap stated consistently with the statutory rules.
• Period covered: It should be clear which debts are secured by reference to the dates on which they arise.
• Changes: A new outlet, additional credit or an extension of scope should require separate consideration.
• Reduction mechanism: Agree that the security will be reduced following regular payments or the repayment of specified debts.

Where the statutory conditions are met, a joint and several guarantee may allow the creditor to pursue the guarantor without first exhausting the company’s assets. It is therefore unsafe to assume: “If the company does not pay, they will have to spend a long time pursuing it first.” Do not sign documents with blank amounts or dates to be filled in later.

4. Put the duration, notification requirements and release terms in writing

Under Article 598 of the Turkish Code of Obligations, a guarantee given by an individual generally ends automatically ten years after it is entered into. The law also permits extensions subject to specific timing and formal requirements. Do not mistake this rule for short-term protection: negotiate a shorter duration and a defined period for the debts covered that suit your investment plan.

The end of the franchise agreement does not necessarily end guarantee liability for existing debts on the same day. Nor does transferring your shares or stepping down as a director automatically release you from the guarantee. Agree in advance on the conditions for obtaining a written release from liability in these circumstances.

Ask for the agreement to include a clear procedure for notifying the guarantor of payment defaults and providing an up-to-date debt statement on request. Specify who is responsible, and the timetable, for issuing a written release and returning security documents and any promissory notes once the debts have been settled.

Practical takeaway: Before signing, prepare a one-page summary of the security: to whom are you providing it, for which debts, up to what limit, for how long, and how will you be released? If the documents do not answer these questions clearly, do not agree to the personal guarantee until a lawyer has completed their review.