As a franchisee of Exit Realty Upper Midwest, am I required to personally guarantee the Franchise Agreement?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
If the Franchisee is operating as a corporation, partnership or limited liability company, you must comply with the requirements of entity ownership set forth in Section 14 of the Franchise Agreement. Those requirements include:
- (a) You must execute a Personal Guaranty of the Franchise Agreement.
- (b) The Franchisee entity must be legally authorized to do business in the state where your Protected Territory is located.
- (c) You must provide EXIT Realty Upper Midwest with copies of the Franchise entity's organizational documents, such as Articles of Incorporation and Bylaws, Articles of Organization and Operating Agreement or Partnership Agreement, including a breakdown of ownership.
- (d) You must provide EXIT Realty Upper Midwest with a copy of any Buy-Sell Agreement between the equity holders of the Franchisee entity.
Source: Item 1 — THE FRANCHISOR AND SUBFRANCHISOR, AND ANY PARENTS, PREDECESSORS AND AFFILIATES (FDD pages 6–8)
What This Means (2025 FDD)
According to Exit Realty Upper Midwest's 2025 Franchise Disclosure Document, whether you are required to personally guarantee the Franchise Agreement depends on the legal structure you choose for your franchise. If you operate your Exit franchise as a corporation, partnership, or limited liability company, you will be required to execute a Personal Guaranty of the Franchise Agreement. This means that you, as an individual, are promising to fulfill the financial and legal obligations of the franchise, even if your business entity cannot.
This requirement is outlined in Section 14 of the Franchise Agreement. In addition to the personal guarantee, if you operate as a corporation, partnership, or limited liability company, you must ensure that your business entity is legally authorized to conduct business in the state where your protected territory is located. You must also provide Exit Realty Upper Midwest with copies of your entity's organizational documents, such as Articles of Incorporation and Bylaws, Articles of Organization and Operating Agreement, or Partnership Agreement, including a breakdown of ownership. Finally, you must provide Exit Realty Upper Midwest with a copy of any Buy-Sell Agreement between the equity holders of the Franchisee entity.
The personal guarantee is a common practice in franchising, especially when the franchisee is a business entity rather than an individual. It provides the franchisor with an additional layer of security, ensuring that there is a responsible party who is personally liable for the franchise's performance. This can be a significant consideration for prospective Exit franchisees, as it puts their personal assets at risk if the franchise fails to meet its obligations. Franchisees should carefully consider the implications of providing a personal guarantee and seek legal and financial advice before signing the Franchise Agreement.
It is important to note that if you operate the Exit franchise as an individual, the requirement to execute a Personal Guaranty of the Franchise Agreement does not apply. However, operating as an individual may have other legal and tax implications that you should discuss with your advisors.