Personal guarantee
What it means
Many franchisees operate through a company or trust to run the business and limit liability. Franchisors and landlords often respond by requiring the individuals behind that company to sign personal guarantees, so that if the company defaults on franchise fees, the lease or a loan, the guarantor is personally on the hook. The corporate structure limits liability to the company; the guarantee pierces back through to the individuals.
Guarantees can cover different things: obligations under the franchise agreement, the premises lease, and any equipment or business finance. A spouse or other family member is sometimes asked to guarantee as well, particularly where they own assets like the family home. The practical effect is that a business failure can become a personal financial problem.
The 2025 Franchising Code introduced protections around guarantees and financial exposure — for example limiting certain claims a franchisor can make on a franchisee's assets in some circumstances and reinforcing good-faith conduct. Even so, personal and lease guarantees remain common, so understanding exactly what you are guaranteeing, and for how long, is essential before signing.
In practice
Read every guarantee you are asked to sign and identify what it covers, who is bound, and whether it survives the end of the franchise or the sale of the business. Get legal advice on the guarantee specifically, not just the franchise agreement, and be especially careful where a family home secures a lease guarantee.
Where possible, negotiate the scope — a cap on the amount, a release on transfer, or excluding a non-involved spouse — although franchisors and landlords often resist. At minimum, go in with clear eyes about the personal risk you are accepting, and factor it into whether the opportunity is worth it.
A real example
A couple sets up a company to run a cleaning franchise and both sign personal guarantees for the franchise agreement, while one also guarantees the equipment lease. Two years in, the business fails owing fees and lease payments. Because of the guarantees, the franchisor and financier can pursue the couple personally, not just the now-insolvent company.
Personal guarantee — FAQs
Why does the franchisor want a personal guarantee if I have a company?
A company limits liability to the company's assets. A personal guarantee lets the franchisor or landlord recover from the individuals behind it if the company defaults, which is why it undoes much of the protection the company structure gives.
What can I lose under a personal guarantee?
Potentially personal assets, including savings and, where a guarantee is secured against it, the family home. The exposure depends on what the guarantee covers and its limit, if any.
Does the guarantee end when I sell the franchise?
Not automatically. Some guarantees survive until formally released. Check whether yours ends on transfer and, if not, seek a written release as part of any sale.
Can I avoid signing a personal guarantee?
Often not entirely, as franchisors and landlords commonly require them. You may be able to negotiate the scope or a cap. Get specific legal advice on the guarantee before signing.
See the full franchise glossary, the Fee Index or our buyer guides.