Personal Guarantees in Franchise Agreements
Every franchise agreement includes a personal guarantee. Here's what it actually obligates you to and what's negotiable.
A personal guarantee makes you personally liable for the obligations of your franchise — including royalties, debts, and damages — if the business cannot pay.
What It Covers
Standard personal guarantees cover ongoing royalties, ad fund contributions, unpaid debts to the franchisor, and damages from breach of the franchise agreement. Some extend to obligations of related entities.
Spousal Guarantees
Many franchisors require the spouse to sign as well, especially in community-property states. This dramatically expands recoverable assets. Push back where possible — some franchisors will waive spousal guarantees on request.
What's Often Negotiable
Scope (limit to franchise-related obligations only), duration (cap at the franchise term), and joint-and-several language when multiple owners exist. Get any negotiated changes in writing in the guarantee itself, not in a side letter.
Bankruptcy Implications
Personal guarantees survive most forms of business bankruptcy. If the franchise fails and the corporate entity files Chapter 7, the guarantor remains personally liable. Plan accordingly.
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