After termination of the Buona franchise agreement, can a former franchisee make loans to a Competitive Business within the restricted radius?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee covenants that Franchisee and any of its shareholders, officers, directors, members, managers, partners and guarantors, either directly or indirectly, for itself or themselves or on behalf of, or in conjunction with, any other person or entity, regardless of the cause for termination shall not:
- (a) For a period of two (2) years following the expiration or termination of this Agreement, have any ownership interest in, maintain, operate, engage in, serve as a director, officer, manager, employee, consultant or representative of, grant a franchise to, advise, help, make loans to, lease property to, or have any interest in, directly or indirectly, a Competitive Business that is located within a radius of ten (10) miles of (i) the location specified in the Approved Site Location Addendum as described in Article I or (ii) the location of any other Buona Business, whether owned by Franchisor or any other Buona franchisee, in existence as of the date of expiration or termination of this Agreement.
This restriction will not apply to the ownership of less than 2% of the outstanding shares of a publicly-traded security.
Franchisee and its officers, directors, shareholders, managers, members, partners and guarantors expressly acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting those skills.
As a result, adherence to this restriction will not deprive them of their personal goodwill or ability to earn a living.
Source: Item 23 — RECEIPTS (FDD pages 78–356)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, a former franchisee is restricted from making loans to a competitive business within a specific radius for a certain period after the franchise agreement terminates. Specifically, for two years following the expiration or termination of the agreement, the franchisee (including its shareholders, officers, directors, members, managers, partners, and guarantors) cannot directly or indirectly make loans to a Competitive Business. This restriction applies within a ten-mile radius of either the original franchise location or any other Buona location existing at the time of termination.
This restriction is broad, covering not only direct actions by the former franchisee but also indirect involvement through other entities or persons. The FDD specifies that the franchisee cannot have any ownership interest in, maintain, operate, engage in, serve as a director, officer, manager, employee, consultant, or representative of a Competitive Business. They are also prohibited from granting a franchise to, advising, helping, or leasing property to a Competitive Business within the restricted area and time frame.
The document does provide a minor exception: the restriction does not apply to the ownership of less than 2% of the outstanding shares of a publicly-traded security. Buona emphasizes that these restrictions are reasonable, stating that the franchisee possesses general skills and abilities and has other opportunities to earn a living, so the non-compete will not deprive them of their personal goodwill or ability to earn a living.
For a prospective franchisee, this clause is significant. It means that upon leaving the Buona system, their business activities are significantly restricted for two years within a ten-mile radius of any Buona location. This could limit their ability to invest in or support competing businesses, potentially affecting their future business ventures. It is important to fully understand the scope and implications of this non-compete agreement before entering into a franchise agreement with Buona.