Does the All States M.E.D. franchisor need to approve the transfer of ownership interest in the franchisee?
All_States_M_E_D Franchise · 2024 FDDAnswer from 2024 FDD Document
transferred; provided, however, that with respect to any assignment resulting in the subsequent performance by the assignee of the functions of Franchisor, the assignee shall assume the obligations of Franchisor hereunder and
Franchisor shall thereafter have no liability for the performance of any obligations contained in this Agreement.
18.2 Transfer by Franchisee to a Third Party
The rights and duties of Franchisee as in this Agreement, and the Franchise herein granted, are personal to Franchisee (or its owners), and Franchisor has entered into this Agreement in reliance upon Franchisee's personal or collective skill and financial ability. Accordingly, neither Franchisee nor any holder of a legal or beneficial interest in Franchisee may sell, assign, convey, give away, pledge, mortgage, sublicense or otherwise transfer, whether by operation of law or otherwise, any interest in this Agreement, the Franchise granted hereby, the assets of the Franchised Business or any part or all of the ownership interest in Franchisee without the prior written approval of Franchisor. Any purported transfer without such approval shall be null and void and shall constitute a material breach of this Agreement. If Franchisee is in compliance with this Agreement, Franchisor's consent to such transfer shall be conditioned upon the satisfaction of the following requirements:
- (a) Franchisee has complied with the requirements in Section 19;
- (b) all obligations owed to Franchisor, and all other outstanding obligations relating to the Franchised Business, are fully paid and satisfied;
- (c) Franchisee (and any transferring owners, if Franchisee is a business entity) has executed a general release, in a form the same as or similar to the General Release attached as Schedule 1, of any and all claims against Franchisor, including its officers, directors, shareholders, managers, members, partners, owners, employees and agents (in their corporate and individual capacities), including, without limitation, claims arising under federal, state or local laws, rules or ordinances, and any other matters incident to the termination of this Agreement or to the transfer of Franchisee's interest herein or to the transfer of Franchisee's ownership of all or any part of the Franchise; provided, however, that if a general release is prohibited, Franchisee shall give the maximum release allowed by law;
- (d) the prospective transferee has satisfied Franchisor that it meets Franchisor's management, business and financial standards, and otherwise possesses the character and capabilities, including business reputation and credit rating, as Franchisor may require to demonstrate ability to conduct the Franchised Business;
- (e) the transferee and, if Franchisor requires, all persons owning any interest in the transferee, have executed the then-current franchise agreement for new franchisees, which may be substantially different from this Agreement, including different Royalty Fee and other material provisions, and the franchise agreement then executed shall be for the term specified in such agreement;
- (f) the transferee has executed a general release, in a form the same as or similar to the General Release attached as Schedule 1, of any and all claims against Franchisor and its officers, directors, shareholders, managers, members, partners, owners, employees and agents (in their corporate and individual capacities), with respect to any representations regarding the Franchise or the business conducted pursuant thereto or any other matter that may have been made to the transferee by Franchisee;
- (g) Franchisee has provided Franchisor with a complete copy of all contracts and agreements and related documentation between Franchisee and the prospective transferee relating to the intended sale or transfer of the Franchise;
- (h) Franchisee, or the transferee, has paid to Franchisor, before the transaction is completed, a transfer fee in the amount of $15,000;
- (i) the transferee, or all holders of a legal or beneficial interest in the transferee, has agreed to be personally bound jointly and severally by all provisions of this Agreement for the remainder of its term by executing a personal guaranty in such form as prepared by Franchisor;
- (j) the transferee has obtained all necessary consents and approvals by third parties and all applicable federal, state, and local laws, rules, ordinances, and requirements applicable to the transfer have been complied with or satisfied;
- (k) Franchisee has, and if Franchisee is an entity, all of the holders of a legal and beneficial interest in Franchisee have executed and delivered to Franchisor a nondisclosure and non-competition agreement in a form satisfactory to Franchisor and in substance the same as the nondisclosure and noncompetition covenants contained in Sections 7 and 17;
Source: Item 23 — RECEIPTS (FDD pages 44–174)
What This Means (2024 FDD)
According to All States M.E.D.'s 2024 Franchise Disclosure Document, the transfer of any ownership interest in the franchise requires prior written approval from the franchisor. The FDD emphasizes that the rights and duties of the franchisee are personal, and the franchisor relies on the franchisee's skills and financial ability. Therefore, any sale, assignment, conveyance, or transfer of interest in the franchise, the assets of the franchised business, or ownership interest in the franchisee requires the franchisor's approval. A transfer without this approval is considered a material breach of the agreement and is null and void.
Several conditions must be met to obtain the franchisor's consent for a transfer, assuming the franchisee is in compliance with the agreement. These conditions include paying a transfer fee of $15,000. The transferee must also agree to be personally bound by all provisions of the franchise agreement for the remainder of its term by executing a personal guaranty. Additionally, the transferee needs to obtain all necessary third-party consents and comply with all applicable laws and regulations.
In the event of the death or incapacity of a franchisee or any holder of a legal or beneficial interest in the franchisee, their representative must transfer the individual's interest in the franchised business or the franchisee to a third party approved by All States M.E.D. within 180 days. These transfers, including those by will or inheritance, are subject to the same conditions for assignments and transfers outlined in the agreement. During this 180-day period, a Designated Manager who meets the franchisor's qualifications must primarily manage the franchised business.
All States M.E.D. also retains the right of first refusal if a franchisee proposes to sell their business. Before a franchisee can accept an offer from a third party, they must first submit the offer to All States M.E.D., giving them the option to purchase the business on the same terms. This right does not apply to sales or transfers to family members, but even in those cases, the franchisee must still comply with the general transfer requirements outlined in Section 18.2 of the franchise agreement.