What is considered a 'Competitive Business' under the Beauty Bungalows Franchise Agreement?

According to the 2025 Beauty Bungalows Franchise Disclosure Document, a 'Competitive Business' is defined as any business that develops, operates, constructs, manages, provides, rents, or leases studios, suites, offices, or rooms to individuals, businesses, or groups offering specific services. These services include spa, barbering, beauty, cosmetology, wellness, personal care, massage, nail care, skin care, teeth-whitening, skin tanning, hair loss treatments, and hair treatment services, as well as other similar personal services. This definition is important for franchisees to understand, as it directly relates to the non-compete covenants outlined in the franchise agreement.

This definition has significant implications for a prospective Beauty Bungalows franchisee. During the term of the franchise agreement and for a period of two years after its expiration, termination, or transfer, franchisees are restricted from participating in any capacity in a Competitive Business. This restriction applies within any state where Beauty Bungalows or its franchisees operate, within a 20-mile radius of the franchisee's protected territory, and within a 20-mile radius of any franchised, franchisor-owned, or affiliated company-owned Beauty Bungalows Studio. The non-compete also extends to online activities and multi-area marketing channels used by Beauty Bungalows.

The purpose of this non-compete agreement is to protect Beauty Bungalows's trade secrets and training methods. The franchise agreement states that using this knowledge in a Competitive Business without paying royalties would give the franchisee an unfair advantage over Beauty Bungalows and its other franchisees. This clause aims to maintain the integrity of the Beauty Bungalows system and protect the brand's market position.

It is also important to note that the ownership of a small percentage of stock in a publicly traded company is an exception to this rule. The franchise agreement states that an active officer or a family member of the franchisee can own up to 5% of the stock of any company subject to the reporting requirements of the Securities and Exchange Act of 1934 without violating the non-compete agreement. This exception provides some flexibility for franchisees to invest in other companies without being penalized, as long as the investment remains below the specified threshold.