What constitutes a change in ownership interest that triggers the transfer provisions for an Alloy franchise?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
Any sale (including installment sale), lease, pledge, management agreement, contract for deed, option agreement, assignment, bequest, gift or otherwise, or any arrangement pursuant to which you turn over all or part of the daily operation of the business to a person or entity who shares in the losses or profits of the business in a manner other than as an employee will be considered a transfer for purposes of this Agreement.
Specifically, but without limiting the generality of the foregoing, the following events constitute a transfer and you must comply with the right of first refusal, consent, transfer fee, and other transfer conditions in this Paragraph 11:
Any change in the percentage of the franchisee entity owned, directly or indirectly, by any Owner (including any addition or deletion of any person or entity who qualifies as an Owner) that results in a 20% or more change of ownership interest;
Any change in the general partner of a franchisee that is a general, limited or other partnership entity;
For purposes of this subparagraph 11.A, a pledge or seizure of any ownership interests in you or in any Owner that affects the ownership of 20% or more of you or any Owner, which we have not approved in advance in writing; or
Any grant of a security interest in, or otherwise encumbrance of, any of the assets or securities of you, including the Facility unless you satisfy our requirements.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, several events are considered a transfer of ownership that trigger specific requirements. These include any sale, lease, pledge, management agreement, contract for deed, option agreement, assignment, bequest, gift, or any arrangement where the franchisee turns over all or part of the daily operation to someone who shares in the business's losses or profits (other than as an employee). These situations require Alloy's right of first refusal, written consent, payment of a transfer fee, and satisfaction of other transfer conditions.
Specifically, a transfer is deemed to occur if there's a 20% or more change in the ownership percentage of the franchisee entity owned by any Owner, including adding or removing an Owner. A change in the general partner of a franchisee that is a partnership also constitutes a transfer. Additionally, the pledge or seizure of ownership interests affecting 20% or more of the franchisee or any Owner, without Alloy's prior written approval, is considered a transfer. Finally, granting a security interest in or encumbering any assets or securities of the franchisee, including the Facility, also triggers these transfer provisions unless Alloy's requirements are met.
For a prospective Alloy franchisee, this means that any significant change in ownership structure or control must be disclosed to and approved by Alloy. This includes not only outright sales but also more subtle changes like adding a new partner or taking out a loan that uses the business as collateral. Failing to comply with these transfer provisions can result in the attempted transfer being voided, the franchisee's interest in the agreement being considered voluntarily abandoned, and Alloy having the right to terminate the agreement or collect a transfer fee equal to two times the standard transfer fee of $10,000.
It is important for franchisees to understand these conditions to avoid inadvertently triggering the transfer provisions and potentially facing penalties or termination of their franchise agreement. Franchisees should consult with Alloy and legal counsel before making any changes to their ownership structure or control of the business to ensure compliance with the franchise agreement.