Guarantee and indemnity
What it means
When a franchise is bought through a company or trust, franchisors usually require the individuals behind it to sign a guarantee and indemnity. The guarantee makes them personally liable for the entity's obligations; the indemnity requires them to cover the franchisor's losses.
This pierces the protection a company structure would otherwise give, your home and personal assets can be exposed if the franchise fails.
In practice
Never sign a guarantee and indemnity without legal advice. Understand exactly what it covers, whether it is capped, and whether a spouse is being asked to sign, which raises additional legal considerations.
A real example
A couple buying a franchise through a company are each asked to sign a personal guarantee and indemnity; their lawyer explains this puts their home at risk if the business defaults, so they negotiate a cap.
Guarantee and indemnity, FAQs
What is a guarantee and indemnity in franchising?
A document, usually signed personally by the directors of a franchisee company, promising to meet the entity's obligations and cover the franchisor's losses if it defaults, exposing personal assets.
Should I get advice before signing a personal guarantee?
Always. A guarantee and indemnity can put your home and personal assets at risk. A lawyer can explain its scope and whether it can be capped or limited.
See the full franchise glossary, the Fee Index or our buyer guides.