What minimum equity ownership interest must the Development Principal have in the Developer entity for a Carls franchise, and under what conditions can this requirement be modified?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
- (1) The Development Principal shall have at least a 10% equity ownership interest in Developer or, if Developer is a limited partnership, in Developer's general partner, unless this requirement is modified by CJR in its sole discretion. This Section 8.F.(1) shall not apply if Developer was a publiclyheld entity or a wholly-owned subsidiary of a publicly-held entity as of the date of the first franchise-related agreement between Developer and CJR.
- (2) The Development Principal, at all times, shall be a member of the Continuity Group and, at a minimum, have full control over the day-to-day development of Developer's Franchised Restaurants.
- (3) Unless Developer has named and CJR has approved a Multi-Unit Development Manager:
- (a) The Development Principal shall devote full-time and best efforts to supervising the development of Developer's Franchised Restaurants and shall not engage in any other business or activity, directly or indirectly, that requires substantial management responsibility.
- (b) Unless waived in writing by CJR, the Development Principal shall maintain his primary residence within a reasonable driving distance of the Development Territory.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the Development Principal must maintain at least a 10% equity ownership interest in the Developer entity. If the Developer is a limited partnership, the Development Principal must have at least a 10% equity ownership in the Developer's general partner.
Carls, at its sole discretion, can modify this equity ownership requirement. However, this 10% equity ownership requirement does not apply if the Developer was 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 the Developer and Carls.
The Development Principal must always be a member of the Continuity Group and have full control over the day-to-day development of the franchised restaurants. Unless a Multi-Unit Development Manager is approved by Carls, the Development Principal must devote full-time efforts to supervising the development of the franchised restaurants and cannot engage in other business activities that require substantial management responsibility. The Development Principal must also maintain their primary residence within a reasonable driving distance of the Development Territory, unless waived in writing by Carls. These stipulations ensure that the Development Principal is actively involved and committed to the Carls franchise.