What constitutes a 'Transfer' that triggers the right of first refusal for 360 Painting?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
17.2 Assignment by Franchisee. Franchisee shall not subfranchise, sell, assign, transfer, merge, convey or encumber, in whole or in part (each, a "Transfer"), the Business, the Vehicles, this Agreement or any of its rights or obligations hereunder, or suffer or permit any such Transfer of the Business, the Vehicles, this Agreement or its rights or obligations hereunder to occur by operation of law or otherwise without the prior express written consent of Franchisor. In addition, if Franchisee is a corporation, limited liability company, partnership, business trust, or similar association or entity, the shareholders, members, partners, beneficiaries, investors or other equity holders, as the case may be, may not Transfer their equity interests in such corporation, limited liability company, partnership, business trust, or similar association or entity, without the prior written consent of Franchisor. Furthermore, in the event that any shareholder, member, partner, investor or other direct or indirect equity holder of Franchisee (the "Equity Holder") is a corporation, limited liability company, partnership, business trust, or similar association or entity, the interests of the shareholders, members, partners, beneficiaries, investors or other equity holders, as the case may be, in such Equity Holder, may not be Transferred, without the prior written consent of Franchisor. Any Transfer in violation of this Section shall be void and of no force and effect, will be ineffective against Franchisor and will constitute a material default hereunder. If Franchisee or an Equity Holder is a corporation, limited liability company, partnership, business trust, or similar association or entity with certificated equity interests, all stock or equity certificates of Franchisee or Equity Holder shall have conspicuously endorsed upon them a legend in substantially the following form:
"A transfer of this stock is subject to the terms and conditions of a 360 Painting, LLC FRANCHISE AGREEMENT dated the day of," Franchisor's consent to a Transfer of any interest in this Agreement, or of any direct or indirect ownership interest in the Franchisee, an Equity Holder or any owner thereof, shall not constitute a waiver of any claims Franchisor may have against Franchisee, the transferor or the transferee, nor shall it be deemed a waiver of Franchisor's right to demand compliance with the terms of this Agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to the 2025 360 Painting Franchise Disclosure Document, a 'Transfer' includes a variety of actions related to the franchise business and its ownership. Specifically, franchisees cannot subfranchise, sell, assign, transfer, merge, convey, or encumber the Business, Vehicles, or the Franchise Agreement without the prior written consent of 360 Painting. This restriction applies whether the transfer is done directly or occurs by operation of law.
Furthermore, if the franchisee is a corporation, limited liability company, partnership, business trust, or similar entity, the equity holders cannot transfer their equity interests without 360 Painting's prior written consent. This extends to indirect equity holders as well, meaning that if an equity holder is itself an entity, the interests in that entity cannot be transferred without consent. Any transfer that violates these conditions is considered void and a material default of the Franchise Agreement.
This comprehensive definition of 'Transfer' is significant for prospective franchisees. It means that any change in ownership or control of the franchise, whether direct or indirect, requires the franchisor's approval. This gives 360 Painting significant control over who operates its franchises and maintains brand consistency. The inclusion of equity interests in the definition ensures that the franchisor can also control changes in the ownership of the franchisee entity itself.
For a potential franchisee, this highlights the importance of understanding all aspects of the transfer restrictions. It is crucial to obtain written consent from 360 Painting before undertaking any action that could be construed as a transfer, including changes in equity ownership. Failure to do so could result in the transfer being deemed void and a default of the Franchise Agreement.