Are Principals of an entity that executes the Caring Transitions franchise agreement required to guarantee the Franchisee's obligations?
Caring_Transitions Franchise · 2025 FDDAnswer from 2025 FDD Document
limits required by Franchisor.
7.10 Limited Liability Business Entity.
- (a) If Franchisee is a limited liability business entity (such as a corporation or limited liability company) when it signs this agreement, it must satisfy the following requirements at the time it signs this agreement:
- (1) Franchisee must be a newly organized business entity that has never operated or engaged in any business.
- (2) Franchisee's organizational and governing documents must (i) provide that its activities are confined exclusively to operating one or more Caring Transitions Franchises, (ii) prescribe a maximum of ten Principals, and (iii) prohibit the issuance or transfer of its ownership interests other than in compliance with the terms and conditions of this agreement.
- (3) Franchisee shall provide Franchisor with a list of principal owners, certified by the Designated Individual, containing the full legal name, home address, home telephone number, and ownership percentage of each principal of Franchisee.
- (4) Each principal of Franchisee must execute a separate agreement, in a form prescribed by Franchisor, unconditionally guaranteeing the full payment of Franchisee's obligations under this agreement and agreeing to be jointly and severally bound by all the provisions of this agreement, including the Covenants After Termination.
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 is a limited liability business entity, each principal of the franchisee must execute a separate agreement unconditionally guaranteeing the full payment of the franchisee's obligations. They also agree to be jointly and severally bound by all the provisions of the agreement, including the Covenants After Termination. This requirement is in a form prescribed by Caring Transitions.
If the franchisee is not a limited liability business entity when initially signing the agreement, they have 90 days to transfer all interests, rights, and obligations to such an entity. The individuals who originally executed the agreement must maintain a controlling interest in the limited liability entity, and one of them must act as the principal executive and operating officer.
Furthermore, each new principal of the franchisee must also execute an agreement guaranteeing the full payment of the franchisee's obligations. This ensures that Caring Transitions has recourse to the personal assets of the principals to cover any financial or contractual obligations of the franchise. This is a common practice in franchising to provide the franchisor with additional security.