Is an Aw franchisee allowed to own more than 5% of securities in a restaurant business similar to Papa Ray's Pizza?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
9.3 In-Term Non-competition Agreement. You agree that we would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information among Papa Ray's Pizza franchisees if franchisees and owners of franchisee were permitted to hold interests in any competitive businesses, as described below. You also acknowledge that we have granted this Franchise Agreement to you in part in consideration of, and in reliance on, your agreement to deal exclusively with us. Therefore, during the term of this Agreement, neither you, nor any Owner, may, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with, any person or legal entity, own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any business which offers products or services which are the same as, or similar to, those offered by a Papa Ray's Pizza Restaurant, or any entity which is granting franchises or licenses for any business which offers products or services which are the same as, or similar to, those offered by a Papa Ray's Pizza Restaurant. (The ownership of five percent (5%) or less of a publicly traded company will not be deemed to be prohibited by this paragraph). Further, during the term of this Agreement, you will not (1) divert customers or business from your Papa Ray's Pizza Restaurant to any other business or (2) hire any employees of ours, our affiliates or any other franchisees.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, franchisees and their owners are restricted from holding interests in competitive businesses. However, the document specifies an exception: owning five percent (5%) or less of a publicly traded company is permitted. This exception applies during the term of the Franchise Agreement.
This restriction is in place to protect Aw's confidential information and encourage open communication among franchisees. Aw also relies on the franchisee's agreement to deal exclusively with them when granting the franchise.
In practical terms, a prospective Aw franchisee or their owners cannot own or operate a similar pizza business. They also cannot have a significant ownership stake in a competing franchise. However, they can invest in a small amount of stock (5% or less) in a publicly traded competitor without violating the agreement. This clause ensures that franchisees remain committed to the Aw system and do not divert resources or knowledge to competing ventures.