If a Caring Transitions franchisee transfers its interest to a limited liability entity, what are the requirements regarding the ownership interest of the individuals who originally executed the agreement?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
(b) If Franchisee is not a limited liability business entity when it signs this agreement, then within 90 days after signing this agreement, Franchisee shall transfer all of its interest in the Franchised Business and all of its rights and obligations under this agreement to a limited liability business entity, comply with all of the requirements in subparagraph 7.10(a), and comply with the following additional requirements:
(1) The individual(s) who executed this agreement as Franchisee shall beneficially own a controlling interest in the limited liability business entity and shall not diminish his/her/their ownership Interest therein, except as may be required by law.
(2) One of the individuals who executed this agreement as Franchisee shall act as the principal executive (or manager) and operating officer of the limited liability business entity.
(3) Franchisee shall reimburse Franchisor for actual legal costs incurred by Franchisor in approving and effecting the transfer to the limited liability business entity.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 41–49)
What This Means (2025 FDD)
According to Caring Transitions' 2025 Franchise Disclosure Document, if a franchisee who initially signed the agreement as an individual later transfers their interest to a limited liability entity, specific requirements apply to the ownership interest of the original signatories. The individuals who initially executed the franchise agreement must maintain beneficial ownership of a controlling interest in the limited liability entity. They are not allowed to diminish their ownership interest, except if required by law.
Furthermore, Caring Transitions requires that at least one of the individuals who originally signed the agreement must also serve as the principal executive (or manager) and operating officer of the limited liability entity. This ensures continuity in the management and operation of the franchise, with someone familiar with the original agreement and the Caring Transitions system at the helm.
These stipulations are put in place by Caring Transitions to ensure that the individuals who were initially vetted and approved as franchisees retain significant control and involvement in the business, even after it is transferred to a limited liability entity. This helps maintain the integrity and standards of the Caring Transitions franchise system. Additionally, the franchisee must reimburse Caring Transitions for actual legal costs incurred by Caring Transitions in approving and affecting the transfer to the limited liability business entity.