For a Carls franchise, what confidentiality and non-competition restrictions are members of the Continuity Group and their spouses bound by?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
If you are any type of business entity other than a sole proprietorship, we and you will identify a "Continuity Group." The members of the Continuity Group will include: (1) the Development Principal; (2) the Operating Principal; (3) all holders of a direct or indirect legal or beneficial interest of 10% or more ("10% Owners") in Franchisee; (4) if Franchisee is a limited partnership, all 10% Owners in Franchisee's general partner; and (5) if any 10% Owner of Franchisee is a corporation or limited liability company, all 10% Owners in the entity that is a 10% Owner of Franchisee. You must notify us of any change in the Continuity Group. Each member of the Continuity Group and their spouses, if applicable, is bound by the confidentiality and non-competition restrictions described in Item 17 and must sign a guarantee assuming and agreeing to discharge all of your obligations to us unless we, in our sole discretion, waive or modify this requirement.
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, members of the Continuity Group and their spouses are bound by confidentiality and non-competition restrictions. The specific details of these restrictions are described in Item 17 of the FDD.
The Continuity Group includes the Development Principal, the Operating Principal, all holders of a direct or indirect legal or beneficial interest of 10% or more in the franchisee (referred to as "10% Owners"), and if the franchisee is a limited partnership, all 10% Owners in the franchisee's general partner. Additionally, if any 10% Owner of the franchisee is a corporation or limited liability company, all 10% Owners in that entity are also included in the Continuity Group.
Each member of the Continuity Group and their spouses must sign a guarantee assuming and agreeing to fulfill all of the franchisee's obligations to Carls, unless Carls waives or modifies this requirement at their discretion. This means that these individuals are personally responsible for ensuring the franchisee meets its financial and operational commitments to Carls. Prospective franchisees should carefully review Item 17 of the FDD to fully understand the scope and duration of these confidentiality and non-competition restrictions and consult with a legal professional to assess their implications.