I have received a franchise agreement from the franchisor and it had a guarantor/principal as a third party to it. What is it?
Most franchisors require that the franchisee or usually the owner of a corporation obligate themselves to be responsible for and guarantee fulfillment of all contractual commitments, including monetary obligations, made by the corporate or other legal entity owning and operating the franchise. A financial guarantee provides a creditor, or in the case of the franchise relationship, the franchisor, with additional collateral security in the form of the net worth of the guarantor/principal. Most guarantee obligations in the franchise context provide that the franchisor may proceed against the individual franchisee as if it was the primary obligor under the franchise agreement. The individual guarantor/principal generally waives any right to require the franchisor to proceed first against the franchisee’s corporate entity.
