Does Buona require a franchisee entity to engage in only the operation of the franchised business?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
vailability is not because of a disclosure by you) and (b) disclosure of the Confidential Information in legal proceedings when you are legally required to disclose it and you have first given us the opportunity to obtain an appropriate legal protective order or other assurance satisfactory to us that the information required to be disclosed will be treated confidentially.
6.4 In-Term Non-Competition Agreement. You agree that we would be unable to protect the Confidential Information against unauthorized use or disclosure and would be unable to encourage a free exchange of ideas and information between you and us if you or your Owners were permitted to hold interests in any competitive businesses, as described below. You also acknowledge that we have entered into this Agreement with you in part in consideration of, and in reliance on, your agreement to deal exclusively with us. Therefore, during the term of this Agreement, neither you, nor any Owner, may, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with, any person or legal entity, own, maintain, operate, engage in, consult with or have any interest in (as disclosed or beneficial owner) any business which offers products or services which are the same as, or similar to, those offered by a Buona Restaurant (other than through a franchise agreement with Franchisor), or any entity which is granting franchises or licenses for any business which offers products or services which are the same as, or similar to, those offered by a Buona Restaurant. (The ownership of five percent (5%) or less of a publicly traded Franchisor will not be deemed to be prohibited by this paragraph.) Further, during the term of this Agreement, you will not (1) divert customers or business from any Buona Restaurants to any other business or (2) hire any employees of ours or our affiliates.
7. DEFAULT AND TERMINATION
- 7.1 The right to open Buona Restaurants has been granted in reliance on your representations and warranties, and strictly on the conditions set forth in this Development Agreement including, without limitation, the condition that you comply strictly with the Development Schedule.
- 7.2 You shall be in default under this Agreement, and all rights granted herein to you shall automatically terminate without notice or an opportunity to cure if:
- (a) you are adjudicated bankrupt, become insolvent, commits any affirmative action of insolvency or files any action or petition of insolvency, or if a receiver (permanent or temporary) of your property or any part thereof is appointed by a court of competent authority, or if you make a general assignment for the benefit of its creditors;
- (b) if a final judgment against your business assets remains unsatisfied of record for thirty (30) days or longer (unless supersedeas bond is filed);
- (c) if execution is levied against your business or property;
- (d) if suit to foreclose any lien or mortgage against Developer's premises or business assets is instituted against you and not dismissed within thirty (30) days, or is not in the process of being dismissed; provided, however, that Franchisor reserves the right to be named as trustee or receiver in any voluntary petition for bankruptcy or insolvency filed by you;
- (e) upon the dissolution of the entity that is Developer is dissolved, or upon the death of one or more of your Owners;
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to the 2025 Buona Franchise Disclosure Document, the franchisee is restricted from engaging in other businesses that directly compete with Buona during the term of the agreement. Specifically, the franchisee, including its owners, cannot own, maintain, operate, or have an interest in any business offering similar products or services to a Buona Restaurant, except through another franchise agreement with Buona. This restriction also extends to businesses that grant franchises or licenses for similar products or services. However, owning 5% or less of a publicly traded franchisor is an exception to this rule.
This non-compete agreement ensures that the franchisee remains focused on the Buona franchise and does not divert resources or customers to other ventures. It also prevents the unauthorized use or disclosure of Buona's confidential information and encourages a free exchange of ideas within the Buona franchise system. The franchisee is further prohibited from diverting customers or business from any Buona Restaurants to any other business or hiring employees of Buona or its affiliates.
After the franchise agreement expires or terminates, the franchisee and its owners are subject to a post-termination covenant for two years. During this period, they cannot engage in a Competitive Business, defined as a retail establishment deriving more than 10% of its gross sales from Italian beef, Italian sausage products, and other Italian specialties, within the Development Area or within a 10-mile radius of any existing Buona Restaurant. The franchisee is also prohibited from diverting customers from Buona or employing individuals associated with Buona. The ownership of 2% or less of a publicly traded franchisor is an exception to this post-termination restriction.
These restrictions are designed to protect Buona's market position, confidential information, and franchise system. Prospective franchisees should carefully consider these non-compete obligations and how they might impact their future business activities. It is important to note that these restrictions apply not only to the franchisee entity but also to its owners, ensuring a comprehensive commitment to the Buona brand and system.