What ownership interest must the Annex Brands franchisee maintain in the legal entity to which the franchise is transferred?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
- E. TRANSFER TO A LEGAL ENTITY. The Franchise, and the assets and liabilities of the Center, may be assigned to a legal entity that conducts no business other than operation of the Center and other businesses franchised by Franchisor, which is actively managed by Franchisee, and in which Franchisee owns and controls all issued and outstanding capital stock, or equivalent ownership interests. The bylaws or other organizational documents of the legal entity will recite that the issuance and assignment of any interest therein is restricted by this Section 13 and all stock certificates, or other evidence of ownership of such legal entity, will bear a legend reciting or referring to the restrictions. Franchisee must deliver to Franchisor copies of organizational documents of such entity (such as articles of incorporation, articles of organization, partnership agreement, etc.) certified by the appropriate governmental authority and other documents of the legal entity as required by Franchisor and will execute and deliver all then-
Source: Item 22 — Contracts (FDD pages 109–110)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, if a franchisee chooses to assign their franchise to a legal entity, they must maintain specific ownership and control. The franchisee is required to actively manage the legal entity. Furthermore, the franchisee must own and control all issued and outstanding capital stock, or equivalent ownership interests, within that entity. This means the franchisee cannot relinquish control to outside investors or partners if they choose to operate under a legal entity.
This requirement ensures that the franchisee remains fully responsible for the operation of the Annex Brands franchise, even when it's held within a corporate structure. It aligns with Annex Brands' interest in having actively involved and dedicated owner-operators. The organizational documents of the legal entity must also state that any issuance or assignment of interest is restricted, and all stock certificates or ownership evidence must bear a legend referring to these restrictions. This protects Annex Brands by preventing unauthorized transfers of ownership.
In practical terms, a prospective Annex Brands franchisee needs to be aware that while they can incorporate their business, they cannot dilute their ownership or cede control without violating the franchise agreement. This could limit options for raising capital or bringing in partners unless Annex Brands provides explicit consent. Franchisees should carefully consider these implications when deciding on the ownership structure for their Annex Brands franchise.