Is there an exception to the post-termination non-compete restriction for Buona if the franchisee owns less than 2% of a publicly-traded security?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
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, the post-termination non-compete restriction does not apply to the ownership of less than 2% of the outstanding shares of a publicly-traded security. This means that a franchisee, after the termination or expiration of their franchise agreement, is not restricted from owning a small amount of stock in a publicly-traded competitor. This exception is relatively common in franchise agreements to allow franchisees to diversify their investments without violating the non-compete clause.
However, the non-compete agreement generally restricts the franchisee (and their shareholders, officers, directors, members, managers, partners, and guarantors) from having any other ownership interest in, maintaining, operating, engaging in, serving as a director, officer, manager, employee, consultant or representative of, granting a franchise to, advising, helping, making loans to, or leasing property to a competitive business. This restriction applies for two years following the expiration or termination of the agreement. The competitive business must be located within a 10-mile radius of the former Buona location or any other Buona Business.
Buona emphasizes that this restriction will not deprive franchisees of their personal goodwill or ability to earn a living, as they possess general skills and abilities and have other opportunities. Franchisees must also ensure that their shareholders, officers, directors, members, managers, partners, guarantors, supervisory and principal employees, and anyone with access to confidential information sign a Nondisclosure and Noncompetition Agreement. This agreement aims to protect Buona's interests by preventing individuals associated with the franchise from engaging in competitive activities or disclosing confidential information, with the exception of owning a small percentage of stock in a publicly traded company.