Under what condition is a Carls franchisee required to comply with Section 18 regarding changes in ownership interests?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
If Franchisee is a business entity, Franchisee must furnish CJR with a list of all holders of a direct or indirect ownership interest in Franchisee and their respective percentage interests. As of the date of this Agreement, all interests in Franchisee are owned as set forth in attached Appendix D. Franchisee shall comply with Section 18 prior to any change in ownership interests and shall update Appendix D as changes occur in order to ensure the information contained in Appendix D is true, accurate and complete at all times.
The requirements of this Section 16.C. shall apply only to Franchisee's Continuity Group (defined in Section 16.E.) if, as of the date of the first franchise-related agreement between Franchisee and CJR or one of its affiliates, Franchisee was a publicly-held entity (i.e., an entity that has a class of securities traded on a recognized securities exchange or quoted on the inter-dealer quotation sheets known as the "pink sheets"). If Franchisee becomes a publicly-held entity after that date, it shall thereafter be required to update Appendix D only with respect to changes in ownership interests of members of the Continuity Group.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to the 2024 Carls FDD, a franchisee that is a business entity must furnish CJR with a list of all holders of direct or indirect ownership interest in the franchise, including their respective percentage interests. The franchisee must comply with Section 18 before any change in ownership interests. They must also update Appendix D as changes occur to ensure the information is accurate and complete.
However, these requirements apply only to the franchisee's Continuity Group if, on the date of the first franchise-related agreement between the franchisee and CJR (or one of its affiliates), the franchisee was a publicly-held entity. If the franchisee becomes a publicly-held entity after that date, it is required to update Appendix D only with respect to changes in ownership interests of members of the Continuity Group.
In practical terms, this means that if you are a Carls franchisee operating as a business entity, you need to be aware of the rules regarding ownership changes. If you are not a publicly-held entity from the start, you must comply with Section 18 for any ownership changes. If you are or become a publicly-held entity, the compliance is limited to changes within your Continuity Group. It is important to keep Appendix D updated to reflect any changes in ownership to avoid any potential issues with Carls.