Is the Development Principal equity ownership requirement for a Carls franchise applicable if the franchisee was a publicly-held entity on the date of the first franchise-related agreement?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
The Development Principal must own at least a 10% equity ownership interest in you, or in your general partner if you are a limited partnership, unless modified by us in our sole discretion. (This requirement does not apply if you were a publicly-held entity or a wholly-owned subsidiary of a publiclyheld entity as of the date of the first franchise-related agreement between you and us.) The Development Principal must be a member of the Continuity Group and have full control over the day-to-day development of the Franchised Restaurants. Unless you have named, and we have approved, a Multi-Unit Development Manager (discussed below), the Development Principal must: (1) devote full time and best efforts to supervising the development of the Franchised Restaurants; and (2) maintain his/her primary residence within a reasonable driving distance of the Development Territory, unless waived in writing by us. The Development Principal will be required to successfully complete our development training and any additional training required by us. If you are developing restaurants in multiple markets that are franchised by us or our affiliates, an individual meeting the above qualifications will serve as the Development Principal in at least one market.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 59–61)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the equity ownership requirement for the Development Principal is waived if the franchisee was a publicly-held entity or a wholly-owned subsidiary of a publicly-held entity on the date of the first franchise-related agreement between Carls and the franchisee.
Specifically, Carls typically requires the Development Principal to own at least a 10% equity ownership interest in the franchisee or its general partner (if the franchisee is a limited partnership). However, this requirement is waived under the condition that the franchisee was a publicly-held entity or a wholly-owned subsidiary of a publicly-held entity when the initial franchise agreement was signed.
This waiver could be beneficial for larger organizations or publicly traded companies looking to expand their portfolio with Carls franchises, as they would not need to allocate a 10% equity stake to the Development Principal. The Development Principal must still be a member of the Continuity Group and have full control over the day-to-day development of the Franchised Restaurants. They also need to devote full time and best efforts to supervising the development of the Franchised Restaurants and maintain their primary residence within a reasonable driving distance of the Development Territory, unless waived in writing by Carls. The Development Principal will be required to successfully complete Carls's development training and any additional training required by Carls.