Under what conditions can ownership interests in Developer be transferred without prior written consent from CJR for a Carls franchise?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
ch of the transferee's affiliates that have entered into a development or franchise agreement with CJR or its affiliates must, as of the date of the request for CJR's consent to the Transfer, be in compliance with all obligations to CJR or its affiliates under those agreements
- C. If CJR consents to a proposed Transfer, prior to the Transfer becoming effective:
- (1) The transferor shall pay CJR a nonrefundable Transfer fee under this Agreement of $2,500 in connection with CJR's review of the Transfer application.
- (2) Developer and the proposed transferee shall execute, at CJR's election, an assignment agreement and any amendments to this Agreement deemed necessary or desirable by CJR to reflect the Transfer and/or CJR's then-current standard form of development agreement for a term ending on the expiration date of this Agreement. In either event, a guarantee of the type required by Section 8.E. shall be executed by those individuals identified in Section 8.E. In addition, Developer, the proposed transferor and the proposed transferee shall sign all other documents and take such actions as CJR may require to protect CJR's rights under this Agreement.
- (3) The transferor shall remain liable for all obligations to CJR incurred before the date of the Transfer and shall execute any and all instruments reasonably requested by CJR to evidence that liability.
- D. If Developer is an individual or a partnership and desires to Transfer this Agreement to a corporation (or limited liability company) formed for the convenience of ownership, the requirements of Section 10.B. shall apply to such a Transfer, however, Developer will not be required to pay a Transfer fee. CJR's consent also will be conditioned on the following: (1) the corporation (or limited liability company) must be newly organized; (2) prior to the Transfer, CJR must receive a copy of the documents specified in Section 8.B. and the transferee shall comply with the remaining provisions of Section 8; and (3) Developer must own all voting securities of the corporation (or membership interests of the limited liability company) or, if Developer is owned by more than one individual, each person shall have the same proportionate ownership interest in the corporation (or the limited liability company) as prior to the Transfer.
- E. Notwithstanding the provisions of Sections 10.A. and B., the issuance of options or the exercise of options pursuant to a qualified stock option plan or a qualified employee stock ownership plan shall not be considered a Transfer and shall not require the prior written consent of CJR; provided no more than a total of 49% of Developer's outstanding voting securities are subject to the qualified stock option plan or qualified employee stock ownership plan.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, there are specific circumstances under which a Developer can transfer ownership interests without obtaining prior written consent from CJR. These exceptions are designed to provide some flexibility in ownership structure while still protecting Carls's interests.
One instance is a transfer of 20% or less of the ownership interest in Developer, provided that the Continuity Group (defined elsewhere in the agreement) retains at least 66% of all ownership interests after the transfer. Another exception applies to transfers following the death or permanent incapacity of an owner, where the transfer is to a parent, sibling, spouse, children, or a member of the Continuity Group.
To proceed with such a transfer without prior consent, the Developer must provide CJR with written notice at least 30 days before the transfer's effective date, including documentation that confirms the transfer meets all specified requirements. Additionally, at the time of this notice, the Developer must not be in default of the Development Agreement or any other agreements with CJR or its affiliates. All individuals involved in the transfer must also fully comply with the requirements outlined in Section 8 of the agreement.
Carls also stipulates that the issuance or exercise of options under a qualified stock option plan or employee stock ownership plan does not require prior written consent, as long as no more than 49% of the Developer's outstanding voting securities are subject to these plans. If the Developer was a publicly-held entity when the initial franchise agreement was established, transfers of ownership interests are only subject to Section 10.B if the transfer results in 50% or more of the voting securities being held by different shareholders than at the time of the initial agreement, or if any existing shareholder acquires an additional 10% or more of the voting securities, or if there is any change in the Continuity Group membership (unless such change is a permitted Transfer pursuant to Section 10.G.).