Does the issuance of additional securities representing an ownership interest in the Apricot Lane franchisee constitute a 'transfer'?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
FRANCHISEE understands and acknowledges that the rights and duties created by this Agreement are personal to FRANCHISEE and its owners and that FRANCHISOR has granted the franchise to FRANCHISEE in reliance upon the individual or collective character, skill, aptitude, attitude, business ability and financial capacity of FRANCHISEE and its owners. Accordingly, neither this Agreement nor the franchise (or any interest therein), nor any part or all of the ownership of FRANCHISEE or the Franchised Business (or any interest therein), may be transferred without the prior written approval of FRANCHISOR, and any such transfer without such approval shall constitute a breach hereof and convey no rights to or interest in this Agreement, the franchise, FRANCHISEE, or the Franchised Business. As used in this Section 20, a "transfer" by FRANCHISEE includes the voluntary, involuntary, direct or indirect assignment, sale, gift or other transfer of any interest in: (i) this Agreement; (ii) the franchise; (iii) the ownership of FRANCHISEE; or (iv) the Franchised Business or a substantial part of the assets used in the Franchised Business and includes any transfer of ownership of capital stock or partnership interest; merger or consolidation or issuance of additional securities representing an ownership interest in FRANCHISEE; any sale of voting stock of FRANCHISEE or any security convertible to voting stock of FRANCHISEE, transfer of an interest in FRANCHISEE, this Agreement, the franchise or the Franchised Business in a divorce, insolvency, corporate or partnership dissolution proceeding or otherwise by operation of law; or transfer of an interest in this Agreement, the franchise, FRANCHISEE, or the Franchised Business in the event of the death of FRANCHISEE or an owner, by will, declaration of or transfer in trust, or under the laws of intestate succession.
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, the issuance of additional securities representing an ownership interest in the franchisee is considered a 'transfer.' The FDD specifies that the rights and duties within the franchise agreement are personal to the franchisee and its owners. Apricot Lane grants the franchise based on the character, skills, business ability, and financial capacity of the franchisee and its owners. Therefore, any change in ownership requires franchisor approval.
The document defines 'transfer' broadly to include not only direct assignments or sales but also indirect transfers of interest. Specifically, the issuance of additional securities representing an ownership interest in the franchisee is explicitly listed as a type of transfer. This means that if a franchisee decides to issue more stock or partnership interests, it is considered a transfer of ownership and requires the franchisor's prior written approval.
This requirement is significant for prospective Apricot Lane franchisees because it restricts their ability to alter the ownership structure of their business without the franchisor's consent. A franchisee needs to seek approval from Apricot Lane before issuing additional securities. Failure to obtain this approval would constitute a breach of the franchise agreement and could potentially lead to termination of the agreement. This provision ensures that Apricot Lane maintains control over who has an ownership stake in its franchises.