Is a Guaranty required as part of the Exit 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 22 — CONTRACTS (FDD page 42)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, a personal guaranty is required in certain situations. Specifically, if the franchisee is operating as a corporation, partnership, or limited liability company, all equity holders in the company must execute a Personal Guaranty of the Franchise Agreement. In community or marital property states, the franchisee's spouse may also be required to sign the Personal Guaranty.
This requirement ensures that individuals behind the franchisee entity are personally liable for the obligations under the Franchise Agreement. This is a common practice in franchising, as it provides the franchisor with additional security and recourse in case of default or breach of contract by the franchisee entity. The personal guaranty makes it easier for Exit to pursue legal action against the individuals who own the franchise, rather than just the business entity.
Furthermore, if a franchisee desires to transfer the agreement to a corporation, partnership, or limited liability company, all individuals executing the agreement must remain personally liable for the performance of all obligations. All equity holders of the assignee entity who have not signed the agreement must execute the Personal Guaranty. The proposed transferee must also sign Exit's current form of Guaranty of the Agreement as a condition of transfer. This ensures that the obligations under the Franchise Agreement are continuously met, even in the event of a transfer.