What must 7 Brew franchisees recite in their organizational documents or operating agreement regarding ownership interests?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
r indirectly, at least a twenty-five percent (25%) ownership interest in you, we may specify who among your ownership group must sign our Guaranty.
F. Your Form and Structure
As a corporation, limited liability company, or general, limited, or limited liability partnership (each, an "Entity"), you agree and represent that:
- (1) You have the authority to execute, deliver, and perform your obligations under this Agreement and all related agreements and are duly organized or formed and validly exist in good standing under the laws of the state of your incorporation or formation;
- (2) Your organizational documents, operating agreement, or partnership agreement, as applicable, will at our request recite that this Agreement restricts the issuance and transfer of any direct or indirect ownership interests in you, and all certificates and other documents representing ownership interests in you will at our request bear a legend (the wording of which we may prescribe) referring to this Agreement's restrictions;
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, if a franchisee operates as a corporation, limited liability company, or partnership, their organizational documents or operating agreement must, at 7 Brew's request, state that the franchise agreement restricts the issuance and transfer of any direct or indirect ownership interests in the franchisee's entity. Furthermore, all certificates and other documents representing ownership interests must bear a legend, with wording prescribed by 7 Brew, referring to these restrictions.
This requirement ensures that 7 Brew maintains control over who can own or have an interest in a 7 Brew franchise. By restricting the transfer of ownership interests, 7 Brew can prevent unauthorized parties from gaining control of a franchise without their approval. This is a common practice in franchising to protect the brand and ensure that all franchisees meet the franchisor's standards.
Additionally, 7 Brew can request that the franchisee's organizational documents include a provision requiring any dissenting or non-voting interest holders to execute all documents necessary to carry out any action properly authorized under the organizational documents. This provision is designed to streamline decision-making and prevent minority owners from obstructing necessary actions related to the franchise. This could be particularly important in situations where the franchisee needs to make quick decisions or take action to protect the business.
Finally, Exhibit B to the franchise agreement must completely and accurately describe all of the franchisee's owners and their interests (direct or indirect) in the franchisee as of the effective date of the agreement. This provides 7 Brew with a clear understanding of the ownership structure of each franchise, allowing them to monitor compliance with the ownership restrictions and ensure that all owners are aware of their obligations under the franchise agreement.