Will a franchisor require a personal guarantee from me if I operate a franchise through a limited company?

Brian Duckett writes:

Many certainly will and you may wonder why when most other suppliers of goods and services to your business may find it impractical to do so, even though at any given time they may be owed a lot more money by your business than is the franchisor.

The franchisor will have a considerable value of assets and resources tied up in your business, not least the rights to operate the system under the brand name at the location or within the territory.

They may also be the landlord and will have been counting on receiving the appropriate rent and management services fees for a considerable number of years.

If a limited company goes into liquidation, the chances of recovering damages from it, or its directors, are virtually nil. Since, as an entity, that company is now dead, it would also be impossible to prevent it from carrying on a similar business.

Taking on a franchise should be a serious business and personal decision. It should not be taken on a whim with the thought that the business can always be allowed to go bust if it doesn’t work. You are committing to give it your best efforts for a period of time and you should be prepared to be held personally responsible for any failure.

Brian Duckett is chairman of The Franchising Centre, part of the world’s largest network of specialist franchise consultants.