Is a Bang Cookies Franchisee prohibited from granting a security interest in the assets of the Franchised Business to secure financing for initial development?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
Shop designs, images, marketing materials, packaging, branding and/or branding images which Franchisor authorizes and requires Franchisee to use in connection with the operation of the Franchised Business and as may be revised and further developed by Franchisor from time to time.
"Training Program" shall have the meaning defined and set forth in Article 4.A. of this Agreement.
"Transfer" refers to and means and shall include, without limitation, the following, whether voluntary or involuntary, conditional or unconditional, and/or direct or indirect: (a) an assignment, sale, gift, transfer, pledge or sub-franchise; (b) the grant of a mortgage, charge, lien or security interest, including, without limitation, the grant of a collateral assignment; (c) a merger, consolidation, exchange of shares or other ownership interests, issuance of additional ownership interests or securities representing or potentially representing ownership interests, or redemption of ownership interests; (d) a sale or exchange of voting interests or securities convertible to voting interests, or an agreement granting the right to exercise or control the exercise of the voting rights of any holder of ownership interests or to control the operations or affairs of Franchisee; and/or (e) the legal and/or equitable transfer and/or sale of an Owners interests and/or voting rights in Franchisee.
"Transfer Fee" shall have the meaning defined in Article 14.C.(11) of this Agreement. The Transfer Fee is a fixed sum of $15,000.
ARTICLE 2 GRANT OF FRANCHISE
2.A. GRANT OF FRANCHISE
Franchisee has requested that Franchisor grant to Franchisee the non-exclusive license and right to develop, own and operate a Bang Cookies Shop from a fixed Shop Location located within a specified territory.
Source: Item 23 — RECEIPTS (FDD pages 56–245)
What This Means (2024 FDD)
According to Bang Cookies' 2024 Franchise Disclosure Document, a franchisee is not outright prohibited from granting a security interest in the assets of the franchised business. However, any such action is considered a "Transfer" and is subject to certain conditions and restrictions. Specifically, the grant of a mortgage, charge, lien, or security interest, including a collateral assignment, falls under the definition of a "Transfer."
This means that if a Bang Cookies franchisee wants to secure financing by using the assets of their franchise as collateral, they must comply with the transfer provisions outlined in the Franchise Agreement. These provisions likely involve obtaining the franchisor's approval, which may not be unreasonably withheld but ensures that Bang Cookies maintains control over who has a financial interest in its franchises. The franchisor's approval of a transfer does not constitute a warranty or guarantee of the suitability of the terms of sale, successful operation, or profitability of the franchised business.
Furthermore, the transfer of the assets of the franchised business must be made in conjunction with a transfer of the Franchise Agreement itself, which also requires the franchisor's approval. This ensures that the franchisee cannot simply transfer assets without also transferring the rights and obligations under the Franchise Agreement. Bang Cookies' consent to a transfer does not waive any claims it may have against the franchisee or waive its right to demand strict compliance with the agreement by the transferee.
In practical terms, a prospective Bang Cookies franchisee should carefully review the transfer provisions in Article 14 of the Franchise Agreement to understand the specific requirements and restrictions related to granting a security interest in the franchise's assets. They should also be prepared to seek the franchisor's approval and provide any necessary documentation or information to support their request. Failure to comply with these requirements could result in a breach of the Franchise Agreement and potential termination of the franchise.