Is a Bang Cookies franchisee allowed to own stock in a publicly traded company that is a Competitive Business?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee agrees that during the Term of this Agreement, Franchisee shall not engage in the following activities (the "Prohibited Activities"): (a) owning and/or having any legal or equitable interest whether, as an individual proprietor, owner, partner, member or shareholder of a Corporate Entity, or, in any similar capacity, in a Competitive Business other than, owning an interest of 3% or less in a publicly traded company that is a Competitive Business; (b) operating, managing, funding and/or performing services whether, as an employee, officer, director, manager, consultant, representative, agent, and/or creditor or, in any similar capacity, for or benefitting a Competitive Business; (c) diverting or attempting to divert any business or customers from Franchisor or, one of Franchisor's affiliates or franchisees; (d) inducing any customer or client of Franchisor, Franchisor's affiliates, franchisees of the System, or, of Franchisee, to any other person or business that is not a Bang Cookies Shop; and/or (e) engaging in any actions, inactions, and/or activities in violation of Articles 6.B. and/or 6.C. of this Agreement (all, individually and, collectively, referred to as the "Prohibited Activities"). Franchisee agrees that if Franchisee were to engage in the Prohibited Activities that such actions would be unfair, would constitute unfair competition and would cause harm to Franchisor, the System and other Bang Cookies Shop franchisees. Franchisee agrees that the foregoing covenants and obligations shall also apply to Franchisee's Owners and Spouses and that Franchisee's Owners and Spouses shall each execute and deliver to Franchisor the Franchise Owner and Spouse Agreement and Guaranty in the form attached to this Agreement as Exhibit 1.
Source: Item 23 — RECEIPTS (FDD pages 56–245)
What This Means (2024 FDD)
According to Bang Cookies's 2024 Franchise Disclosure Document, a franchisee is permitted to own a limited amount of stock in a publicly traded company that is considered a Competitive Business. Specifically, the franchisee can own an interest of 3% or less in such a company. This allowance is part of the restrictive covenants outlined in the franchise agreement, which primarily aims to prevent unfair competition during the term of the agreement.
This provision acknowledges that franchisees may have investment portfolios that include shares in various companies, and it sets a threshold to distinguish between passive investment and active involvement in a competing business. By limiting the ownership to 3% or less, Bang Cookies aims to ensure that the franchisee's financial interest in a competitor is not substantial enough to influence their decisions or actions in a way that could harm the Bang Cookies brand or business.
It is important for prospective franchisees to understand this restriction and ensure their investment activities comply with the terms of the franchise agreement. Exceeding the 3% ownership limit in a publicly traded competitor could be considered a breach of the agreement, potentially leading to penalties or termination of the franchise. Franchisees should consult with legal and financial advisors to ensure compliance with these and other restrictive covenants outlined in the FDD.