If the Carls Developer is a business entity, what activities must the Developer's governing documents limit them to, unless waived in writing by CJR?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
If Developer is a corporation, a limited liability company, a partnership or any other type of organization (collectively, "business entity"), Developer makes the following representations and warranties: (1) it is duly organized and validly existing under the laws of the state of its formation; (2) it is qualified to do business in the state or states in which the Development Territory is located; (3) execution of this Agreement and the development and operation of Franchised Restaurants is permitted by its governing documents; and (4) unless waived in writing by CJR, Developer's governing documents shall at all times provide that the activities of Developer are limited exclusively to the development and operation of the Franchised Restaurants and other restaurants that are franchised by CJR or its affiliates and that no Transfer (as defined in Section 10) of an ownership interest may be made except in accordance with Section 10.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, if the Developer is a business entity, its governing documents must stipulate that its activities are limited to the development and operation of Carls franchised restaurants, as well as other restaurants franchised by Carls or its affiliates. Additionally, the governing documents must state that no ownership interest transfer can occur unless it complies with Section 10 of the agreement.
This restriction ensures that the Developer remains focused on growing the Carls brand and prevents them from diverting resources to other business ventures that could potentially compete with or detract from their Carls operations. It also gives Carls control over who can own an interest in the Developer entity.
However, Carls retains the discretion to waive this requirement in writing, providing some flexibility depending on the specific circumstances of the Developer. A prospective franchisee should discuss with Carls under what conditions such a waiver might be granted and what alternative business activities might be permissible.