For a Carls franchise, am I required to personally participate in the direct operation of the Franchised Restaurant?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
you will warrant will be subject to this confidentiality requirement. You also agree not to contest CJR's interest in the trade secrets and confidential and proprietary information that comprise the Carl's Jr. System.
We are not required by any agreement to protect or defend copyrights or confidential information, although we intend to do so as appropriate.
ITEM 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS
You are not obligated to participate personally in the direct operation of the Franchised Restaurant; however, you must designate, and we must approve, a qualified individual to serve as the "Operating Principal" of your Franchised Restaurant. If you sign a Development Agreement, you must designate, and we must approve, a qualified individual to serve as your "Development Principal."
The Operating 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, and be a person acceptable to both us and you. (This requirement does not apply if you were a publicly-held entity or a wholly-owned subsidiary of a publicly-held entity as of the date of the first franchise-related agreement between you and us.) The Operating Principal must be a member of the Continuity Group and have full control over the day-to-day activities of the Franchised Restaurant and those other restaurants (that are franchised by us or our affiliates) operated by you in the same geographic market as the Franchised Restaurant, including control over the standards of operation and financial performance. Unless you have named, and we have approved, a Multi-Unit Manager (discussed below), the Operating Principal must: (1) devote full time and best efforts to the supervision and conduct of the Franchised Restaurant and those other restaurants (that are franchised by us or our affiliates) operated by you in the same geographic market as the Franchised Restaurant; and (2) maintain his/her primary residence within a reasonable driving distance of the Franchised Restaurant, unless waived in writing by us. The Operating Principal will be required to successfully complete the FMTP and any additional training required by us. If you operate restaurants in multiple markets that are franchised by us or our affiliates, an individual meeting the above qualifications will serve as the Operating Principal in at least one market.
If you operate restaurants that are franchised by us or our affiliates in multiple geographic markets, for all markets in which the Operating Principal fails to satisfy our requirements, you must designate and retain an individual to serve as Multi-Unit Manager. The Multi-Unit Manager will be under the supervision of the Operating Principal. The Multi-Unit Manager must devote full time and best efforts to supervising the operation of the Franchised Restaurant and those other restaurants (that are franchised by us or our affiliates) operated by you in the same geographic market, successfully complete the FMTP and any additional training required by us, and be approved by us. In addition, the Multi-Unit Manager must maintain his/her primary residence within a reasonable driving distance of the Franchised Restaurant, unless waived in writing by us.
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.
If you are developing Franchised Restaurants in multiple geographic markets, for all markets in which the Development Principal fails to satisfy our requirements, you must designate and retain an individual to serve as Multi-Unit Development Manager. The Multi-Unit Development Manager will be under the supervision of the Development Principal. The Multi-Unit Development Manager must devote full time and best efforts to supervising the development of the Franchised Restaurants and other restaurants that are to be operated by you that are franchised by us or our affiliates in a geographic market, successfully complete our development training, the FMTP and any additional training required by us, and be approved by us. In addition, the Multi-Unit Development Manager must maintain his/her primary residence within a reasonable driving distance of the Development Territory, unless waived in writing by us.
The Franchised Restaurant must at all times be under the on-site supervision of one of the following designated individuals who must meet our applicable training qualifications for their designated position: the Operating Principal, a Multi-Unit Manager, a restaurant General Manager, or a Site Manager. You must, at all times, employ at the Franchised Restaurant at least one General Manager and a sufficient number of employees who have successfully completed the FMTP to ensure that the Franchised Restaurant operates in accordance with the System. If the Franchised Restaurant employs at any time fewer than the required number of trained personnel who have successfully completed the FMTP, you have 30 days to hire and enroll the required number of personnel in the FMTP.
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, you are not required to personally participate in the direct operation of the franchised restaurant. However, you must designate and obtain Carls's approval for a qualified individual to serve as the "Operating Principal". If you sign a Development Agreement, you must also designate and obtain approval for a "Development Principal".
The Operating Principal must have at least a 10% equity ownership interest in your business or its general partner (if a limited partnership), unless Carls modifies this requirement at its discretion. This equity requirement does not apply to publicly-held entities or their wholly-owned subsidiaries. The Operating Principal must be part of the "Continuity Group" and have full control over the day-to-day operations, standards, and financial performance of the franchised restaurant and any other Carls franchises you operate in the same geographic market. Unless a Multi-Unit Manager has been approved, the Operating Principal must devote full-time effort to supervising the restaurant and live within a reasonable driving distance, unless Carls waives this requirement.
If you operate Carls restaurants in multiple geographic markets, you must designate a Multi-Unit Manager for any market where the Operating Principal does not meet Carls's requirements. The Multi-Unit Manager will be supervised by the Operating Principal and must also devote full-time effort to supervising the restaurant's operations, complete the required training, and live within a reasonable driving distance, unless waived by Carls. The franchised restaurant must always be under the on-site supervision of the Operating Principal, a Multi-Unit Manager, a General Manager, or a Site Manager, all of whom must meet Carls's training qualifications. You must employ at least one General Manager and enough employees who have completed the FMTP to ensure the restaurant operates according to Carls's system. If you do not have enough trained personnel, you have 30 days to hire and enroll them in the FMTP. If a manager leaves, you have 30 days to hire a replacement and enroll them in the FMTP. Managers are not required to have an equity interest in your franchise.
For business entities other than sole proprietorships, Carls and you will identify a "Continuity Group" which includes the Development Principal, the Operating Principal, all holders of a 10% or more legal or beneficial interest in the franchisee, all 10% owners in the franchisee's general partner (if a limited partnership), and all 10% owners in any entity that is a 10% owner of the franchisee (if that owner is a corporation or LLC). You must notify Carls of any changes to the Continuity Group. Each member of the Continuity Group and their spouses must sign a guarantee assuming your obligations to Carls, unless Carls waives or modifies this requirement.