Does Exit require all equity holders in a franchisee company to sign a personal guarantee?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
As a Franchisee, you, or if you are an entity, an officer, member, director, partner or other person named as the real estate broker of record, must devote full time and best efforts to the Franchise business. If the Franchisee is operating as a corporation, partnership or limited liability company, you and all other equity holders in the company must execute a Personal Guaranty of the Franchise Agreement. In addition, in community or marital property states, your spouse may be required to sign the Personal Guaranty. Your business must be directly supervised "on premises" by a manager who has successfully completed EXIT's training programs. The on-premises manager cannot have an interest or business relationship with any of EXIT's competitors. The manager need not have an ownership interest in your corporate or partnership Franchise. The manager must sign a written agreement to maintain confidentiality of the proprietary information described in ITEM 14 and to conform with the covenants not to compete described in ITEM 17 of this Disclosure Document.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD page 27)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, if a franchisee operates as a corporation, partnership, or limited liability company, Exit requires all equity holders in the company to execute a Personal Guaranty of the Franchise Agreement. Additionally, in community or marital property states, the franchisee's spouse may also be required to sign the Personal Guaranty.
This requirement ensures that Exit has recourse to the personal assets of all equity holders should the franchise entity default on its obligations under the Franchise Agreement. This is a common practice in franchising, as it provides the franchisor with an additional layer of security and encourages equity holders to actively participate in the success of the franchise.
Prospective Exit franchisees should carefully consider this requirement and understand the implications of signing a personal guarantee. They should also consult with an attorney and financial advisor to assess their personal risk exposure and ensure they are comfortable with the terms of the guarantee. Franchisees should also be aware that they 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.