What must the transferee's Entity's operating agreement specify regarding further transfers of interest in the Entity for a Buona franchise?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
- (g) Franchisee shall maintain transfer restrictions on its records, of any securities with voting rights, subject to the restrictions of this Agreement, and each certificate of Franchisee representing ownership or equity interests in the Entity, shall have conspicuously endorsed upon it the following legend:
The transfer of this [stock/membership interest/ownership interest] is subject to the terms and conditions of a Buona Franchise Agreement with Buona dated . Reference is made to the provisions of said Franchise Agreement and to the governing documents of [name of Franchisee Entity].
Source: Item 23 — RECEIPTS (FDD pages 78–356)
What This Means (2025 FDD)
Based on the 2025 Buona Franchise Disclosure Document, if a Buona franchisee operates as an entity, any transfer restrictions must be maintained on the entity's records for securities with voting rights. Furthermore, each ownership certificate must conspicuously display a legend. This legend indicates that the transfer of the stock, membership, or ownership interest is subject to the terms and conditions outlined in the Buona Franchise Agreement, referencing both the agreement's date and the name of the franchisee's entity.
This requirement ensures that any potential future transfers of ownership within the franchisee's entity are subject to Buona's approval and adhere to the franchise agreement's stipulations. This is a common practice in franchising to maintain control over who becomes a franchisee and to ensure that all franchisees meet the franchisor's standards. The legend serves as a clear warning to potential investors or transferees that the ownership interest is not freely transferable and is subject to Buona's consent.
For a prospective Buona franchisee, this means that if they choose to operate their franchise through a corporation, LLC, or partnership, the governing documents of that entity (such as the operating agreement or bylaws) must include provisions that restrict the transfer of ownership interests. Additionally, all ownership certificates must bear the specified legend. Failure to comply with these requirements could result in a breach of the franchise agreement and potential termination of the franchise. Therefore, it is crucial for franchisees to consult with legal counsel to ensure their entity's documents comply with Buona's requirements.