What are the consequences if a Beard Papas franchisee engages in a Prohibited Activity during the franchise relationship?
Beard_Papas Franchise · 2025 FDDAnswer from 2025 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 Beard Papa's 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 Beard Papa's 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 Owner and Spouse Agreement and Guaranty in the form attached to this Agreement as Exhibit 1.
Source: Item 23 — RECEIPTS (FDD pages 58–275)
What This Means (2025 FDD)
According to Beard Papas's 2025 Franchise Disclosure Document, a franchisee is prohibited from engaging in certain activities during the term of the Franchise Agreement. These "Prohibited Activities" include owning an interest in a competitive business (with a minor exception for owning 3% or less of a publicly traded company), operating or providing services to a competitive business, diverting business or customers from Beard Papas, or inducing customers to patronize businesses other than Beard Papa's. The agreement extends these restrictions to the franchisee's owners and spouses, who are required to sign an Owner and Spouse Agreement and Guaranty.
The FDD states that engaging in Prohibited Activities is considered unfair competition and would cause harm to Beard Papas, the System, and other franchisees. While the document explicitly states that these actions would be unfair and harmful, it does not specify the exact consequences or remedies Beard Papas might pursue if a franchisee engages in these activities. It is common in franchising for such violations to lead to actions such as a demand to cease the activity, monetary penalties, or even termination of the franchise agreement, but the FDD excerpt does not detail Beard Papas's specific course of action.
Prospective franchisees should carefully consider these restrictions and how they might impact their other business interests or activities. It is important to seek clarification from Beard Papas regarding the specific consequences of violating these non-compete obligations. Understanding the potential penalties for engaging in Prohibited Activities is crucial for making an informed decision about investing in a Beard Papas franchise.