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📜 Franchise Agreements & Personal Guarantees: Treading Carefully ⚖️ When diving into the franchise world, many budding franchisees are surprised by a common clause in franchise agreements: the 'personal guarantee'. While these guarantees can offer franchisors a layer of security, they can sometimes place an undue burden on franchisees. Why Personal Guarantees? They serve as an assurance for the franchisor, ensuring that if a franchisee's business fails to meet financial obligations, the franchisor can seek payment directly from the franchisee's personal assets. Concerns for Franchisees: 1️⃣ Risk to personal assets: A failing franchise could jeopardize personal properties or savings. 2️⃣ Potentially unlimited liability: Some guarantees have no cap, leaving franchisees exposed to extensive financial risks. Ways to Protect Yourself as a Franchisee: 🔐 Negotiate: While franchisors might be firm on including a guarantee, there’s often room to negotiate its terms. Perhaps limit the amount or duration. 🔐 Legal Counsel: Always engage a franchise attorney. They can offer insights into the agreement's fairness and potential red flags. 🔐 Insurance: Some insurance policies can cover liabilities arising from personal guarantees. It's worth exploring. 🔐 Separate Business from Personal and Estate Planning: Forming an LLC or corporation or creating a personal estate plan can provide an additional layer of protection, though it's not foolproof. In conclusion, while personal guarantees serve a purpose, it's crucial for franchisees to be well-informed and proactive in safeguarding their interests. Franchise veterans and newcomers alike, what's been your experience with personal guarantees? Any tips or stories to share? #franchising #franchise
Hey Rocky! Personal guarantees in franchise agreements can be a real headache for franchisees. They put your personal assets at risk if things go south. My advice? Negotiate those terms, get yourself a good franchise attorney, and check out insurance options. Oh, and don't forget to separate your business and personal stuff! Stay smart and protect yourself, buddy! #franchising
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11moMost personal guarantees that I have seen are capped to the amount that is owed (or owing). This prevents an overreach by franchisors to claim undue debts or future amounts. While the franchisor may still try to claim things like “damage to the brand” and other rather unquantifiable amounts, that cap can provide a reasonable & balanced position for both the franchisor & franchisee to negotiate & fair & just position from the very beginning. If a franchisor is having to chase funds off of a franchisee’s personal guarantee, the relationship has gone haywire long ago. 🤜🫤🤛