Besides the licensed Apricot Lane Franchise Business, can an Associate have a controlling interest in a Competitive Business during the Franchise Agreement term?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
e Franchisor or its affiliates.
- 6. Noncompetition Covenant. Associate acknowledges that, in addition to the license of the Marks hereunder, the Franchisor has also licensed commercially valuable information that comprises and is a part of the Franchise Business, including without limitation, the Confidential Information and Trade Secrets and that the value of this information derives not only from the time, effort and money that went into its compilation, but from the usage of the same by all franchisees of the Franchisor using the Marks and System. Associate therefore agrees that other than the Franchise Business licensed under a Franchise Agreement, the Associate, will not during the Term and renewal Term of the Franchise Agreement:
- (a) Have any direct or indirect controlling interest as a disclosed or beneficial owner in a Competitive Business; or
- (b) Perform services as a director, partner, officer, manager, employee, consultant, representative, agent or otherwise for a Competitive Business; or
- (c) Divert or attempt to divert any business related to, or any customer or account of the Franchised Business, the Franchisor's business, the business of any affiliate of the Franchisor or any other franchisee's business, by direct inducement or otherwise, or divert or attempt to divert the employment of any employee of Franchisor or another franchisee licensed by Franchisor, to any Competitive Business by any direct inducement or otherwise; or
- (d) Without the Franchisor's express written permission, which may be granted or denied in the Franchisor's sole discretion, become an exclusive distributor for any third-party vendor or obtain exclusive distribution rights for any non-APRICOT LANE Products.
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Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, an Associate is restricted from having a direct or indirect controlling interest in a Competitive Business during the term and renewal term of the Franchise Agreement, aside from the licensed Apricot Lane franchise. A Competitive Business is defined as any business that generates 10% or more of its gross revenue from retail store products and services similar to those offered by Apricot Lane franchises. However, an Associate is permitted to own securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, provided they represent 5% or less of the outstanding securities.
This restriction also extends to performing services for a Competitive Business as a director, partner, officer, manager, employee, consultant, representative, or agent. Additionally, Associates are prohibited from diverting business, customers, or employees from the Apricot Lane franchise to any Competitive Business. They also cannot become exclusive distributors for third-party vendors or obtain exclusive distribution rights for non-Apricot Lane products without the franchisor's express written permission, which can be granted or denied at the franchisor's discretion.
These non-compete and confidentiality obligations are designed to protect Apricot Lane's business model, trade secrets, and customer relationships. The definition of "Associate" is broad, including not only the individual or entity directly involved with the franchise but also their managers, officers, beneficial owners, directors, employees, shareholders, partners, members, principals, immediate family members, and domestic partners. This comprehensive definition ensures that the restrictions apply to a wide range of individuals and entities associated with the franchisee, preventing potential conflicts of interest and protecting the franchisor's interests.
For a prospective Apricot Lane franchisee, this means that they and their associates must avoid any significant involvement with competing businesses during the term of the franchise agreement. This includes not only direct ownership but also providing services or diverting business to competitors. It is important to understand these restrictions and ensure compliance to avoid potential legal issues or termination of the franchise agreement. The exception for owning small amounts of publicly traded stock provides some flexibility, but any other involvement with a Competitive Business could be problematic.