If the franchisee of Aw is an entity, what must the owners personally guarantee?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
If you are an entity, your owners must not only personally guarantee your obligations under the Franchise Agreement, but must also agree to be bound by, and personally liable for the breach of, every provision in these agreements, both monetary obligations and obligations to take or refrain from taking specific actions or to engage or refrain from engaging in specific activities, including the preservation of the confidentiality of our confidential information as defined in the Franchise Agreement and compliance with the covenants not to compete described in Item 17. The "Guaranty and Assumption of Obligations" is an exhibit to the Franchise Agreement.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 32–33)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, if the franchisee is an entity, the owners must personally guarantee the franchisee's obligations under the Franchise Agreement. This means the owners are not only guaranteeing the monetary obligations, but also agreeing to be bound by and personally liable for any breach of the agreement. This includes obligations to take or refrain from taking specific actions, engaging or refraining from engaging in specific activities, preserving the confidentiality of Aw's confidential information, and complying with non-compete covenants. The specific terms of this guarantee are detailed in the "Guaranty and Assumption of Obligations," which is an exhibit to the Franchise Agreement.
This requirement has significant implications for prospective Aw franchisees who plan to operate their business through a corporate entity like an LLC or S-Corp. While forming an entity can offer certain liability protections, the personal guarantee effectively pierces that corporate veil, making the owners personally responsible for the business's adherence to the franchise agreement. This is a common practice in franchising, as it provides the franchisor with added security and ensures the owners are fully committed to the success of the franchise.
Specifically, the owners are guaranteeing all aspects of the agreement, including financial obligations like royalty payments and marketing fund contributions, as well as operational requirements and adherence to Aw's standards. They are also guaranteeing compliance with confidentiality and non-compete clauses, which are critical for protecting Aw's proprietary information and market position. The "Guaranty and Assumption of Obligations" document likely contains detailed provisions outlining the scope and limitations of this personal guarantee, which prospective franchisees should carefully review with their legal counsel.
Therefore, prospective Aw franchisees should carefully consider the implications of this personal guarantee and understand the full extent of their personal liability before signing the Franchise Agreement. They should also review the "Guaranty and Assumption of Obligations" exhibit to fully understand the specific terms and conditions of the guarantee. It is advisable to seek legal counsel to fully understand the risks and obligations associated with providing a personal guarantee in the context of an Aw franchise.