For Aplus, what must the charter or articles of formation of the Controlled Entity provide regarding its activities?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
- (a) The Controlled Entity is newly organized and its charter or articles of formation provides that its activities are confined exclusively to the operation of the Franchised Business;
- (b) Franchisee or all holders of a legal or beneficial interest in Franchisee own all of the equity and voting power of the outstanding stock or other capital interest in the Controlled Entity;
- (c) All obligations of Franchisee to Franchisor or any Affiliate are fully paid and satisfied and Franchisee pays to Franchisor the Transfer Fee listed in the Summary Page;
- (d) The Controlled Entity has entered into a written agreement with Franchisor expressly assuming the obligations of this Agreement and all other agreements relating to the operation of the Franchised Business. If the consent of any other party to any such other agreement is required, Franchisee has obtained such written consent and provided the same to Franchisor prior to consent by Franchisor;
Source: Item 23 — RECEIPT (FDD pages 68–302)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, if a franchisee chooses to operate their Aplus store through a Controlled Entity, the charter or articles of formation of that entity must stipulate that its activities are exclusively confined to the operation of the franchised Aplus business. This requirement ensures that the entity's sole focus is on managing the Aplus franchise, preventing any potential conflicts of interest or distractions from other business ventures.
In addition to the restriction on activities, the franchisee or the holders of legal or beneficial interest in the franchisee must own all equity and voting power of the outstanding stock or other capital interest in the Controlled Entity. This provision maintains control of the franchise within the franchisee's ownership and prevents outside parties from influencing the operation of the Aplus store through the Controlled Entity.
Furthermore, all obligations of the franchisee to Aplus or any affiliate must be fully paid and satisfied, including the transfer fee. The Controlled Entity must also enter into a written agreement with Aplus, expressly assuming all obligations of the Franchise Agreement and any other agreements related to the operation of the franchised business. These stipulations ensure that the transfer to the Controlled Entity does not relieve the franchisee of their financial and contractual responsibilities to Aplus.