What geographical restrictions apply to a former Bonchon franchisee regarding engaging in a Competitive Business after the termination or expiration of the Franchise Agreement?
Bonchon Franchise · 2025 FDDAnswer from 2025 FDD Document
For two years immediately following (a) the expiration or termination or assignment of this Agreement for any reason or (b) the date on which all persons restricted by this Section 11.01 begin to comply with this Section 11.01, you are prohibited from directly or indirectly engaging in any Competitive Business as a proprietor, partner, investor, shareholder, director, member, officer, manager, employee, principal, agent, adviser, or consultant, if the other business is located within your Development Territory, within twenty miles of the perimeter of your Development Territory, or within twenty miles of the perimeter of (or within) any Bonchon Business (whether company-owned, franchised or otherwise established and operated).
It is the intention of these provisions to preclude not only direct competition but also all forms of indirect competition, such as consultation for Competitive Businesses, service as an independent contractor for Competitive Businesses, or the provision of any assistance or transmission of information of any kind which would be of any material assistance to a competitor. Nothing in this Section will prevent you from owning for investment purposes no more than an aggregate of 5% of the capital stock of any Competitive Business you do not control and whose stock is listed on the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System. It is the intention of these provisions that any person or entity with any legal or beneficial interest in or traceable to or through you be bound by the provisions of this covenant.
You agree, unless specifically prohibited by applicable law, to obtain the execution of our Confidentiality/Non-Competition Agreement (Exhibit C) from the following persons and to cause them to refrain from the competitive activities described above: (a) before employment or any
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, a former franchisee faces specific geographical restrictions regarding involvement in a Competitive Business. For two years after the termination, expiration, or assignment of the Franchise Agreement, the franchisee is prohibited from engaging in any Competitive Business. This restriction applies if the Competitive Business is located within the Development Territory, within twenty miles of the perimeter of the Development Territory, or within twenty miles of the perimeter of (or within) any Bonchon Business, regardless of whether it's company-owned or franchised.
The FDD defines a Competitive Business as one that offers or sells Korean fried chicken or serves chicken as a primary menu item, deriving 25% or more of its gross revenues from chicken sales. The restrictions extend to various roles, including proprietor, partner, investor, shareholder, director, manager, officer, employee, principal, agent, advisor, or consultant. This broad definition aims to prevent both direct and indirect competition, such as consulting for competing businesses or providing assistance to them.
However, the agreement does allow for some exceptions. A former franchisee can own up to 5% of the capital stock of a Competitive Business if the stock is publicly traded on a national or regional stock exchange and if the franchisee does not control the company. The FDD also states that Bonchon requires individuals such as Operating Principals, equity holders, control persons and others to sign a Confidentiality/Non-Competition Agreement, reinforcing the brand's commitment to protecting its market position and confidential information.