Does the 1 800 Packouts franchise agreement consider the issuance of additional securities representing an ownership interest in the franchisee as a 'transfer'?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
(2) An assignment, sale, gift or other disposition includes the following events: (a) transfer of ownership of capital stock, a membership interest, or a partnership interest; (b) merger or consolidation or issuance of additional securities or interests representing an ownership interest in you; (c) any issuance or sale of your stock or any security convertible to your stock; (d) transfer of an interest in you, this Agreement or the Franchised Business in a divorce, insolvency or corporate or partnership dissolution proceeding or otherwise by operation of law; I transfer of an interest in you, this Agreement or the Franchised Business, in the event of your death or the death of one of your Owners of, by will, declaration of or transfer in trust or under the laws of intestate succession; or (f) pledge of this Agreement (to someone other than us) or of an ownership interest in you as security, foreclosure upon the Franchised Business or your transfer, surrender or loss of possession, control or management of the Franchised Business.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to the 2025 1 800 Packouts Franchise Disclosure Document, the issuance of additional securities representing an ownership interest in the franchisee is considered a 'transfer' that requires prior written approval from 1 800 Packouts. This falls under the broader definition of 'transfer' within the franchise agreement, which encompasses any direct or indirect disposition of interest in the franchise agreement, ownership interest in the franchisee, or the franchised business itself.
Specifically, the 1 800 Packouts franchise agreement states that a transfer includes the transfer of ownership of capital stock, a membership interest, or a partnership interest. It also explicitly includes the merger or consolidation or issuance of additional securities or interests representing an ownership interest in you. This means that if a franchisee decides to issue more stock or securities that alter the ownership structure of their business, it is viewed as a transfer under the agreement.
This provision is significant for prospective 1 800 Packouts franchisees because it restricts their ability to alter their company's ownership structure without the franchisor's consent. Obtaining this approval is crucial, as any transfer conducted without it constitutes a breach of the franchise agreement and is considered void. Franchisees need to consider this when planning for business growth, potential mergers, or seeking additional investment that might involve issuing new securities. It is common practice in franchising to have transfer clauses to protect the brand and ensure that any new owners meet the franchisor's standards.