Affiliate Guaranty
vs.
Personal Guaranty
2016 Issue 3 | GearedUp
I
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have yet to meet an individual
who likes signing a personal
guaranty. Instead, most people go
out of their way to avoid signing a
personal guaranty as they do not
want to be personally liable in the event
things do not turn out as planned. That is
the whole reason people use corporations
and limited liability companies, right?
Fortunately, in connection with signing
a Planet Fitness® franchise agreement,
franchisees – starting in 2015 as a result
of the PFIFA’s negotiating efforts – have
the ability, in certain situations, to swap
out a personal guaranty for an affiliate
guaranty. Based upon my conversations
with Planet Fitness franchisees and my
review of proposed franchise agreements,
it appears there is some confusion
surrounding the affiliate guaranty, so
I thought it would be helpful to share
some of the basics with you and tell you
what to watch out for when signing a
new franchise agreement.
First things first: what is a personal
guaranty? A personal guaranty is an
agreement requiring an individual to
agree to guarantee the performance of
something or someone else. In the Planet
Fitness context, a personal guaranty
means that an individual (the owner(s)
of the franchisee) is required to guarantee the franchisee’s performance. So,
for example, if the franchisee runs out of
money and doesn’t pay PFHQ royalties, PFHQ could require the individual
signing the
personal guaranty
to pay those royalties. Put differently, the personal
guaranty gives
PFHQ another set
of “deep pockets”
to look to in order
by Mark Dady
to ensure that the
franchisee’s debts are paid.
With that introductory concept out of
the way, what’s important to know is that
Section 1.4 of the franchise agreement
says that every individual or entity having
a direct or indirect ownership interest of
10 percent or greater in the franchise is
required to sign the personal guaranty