Is the Development Principal equity ownership requirement applicable to Carls Jr. franchisees that were publicly-held entities on the date of the first franchise-related agreement?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
The Development Principal must own at least a 10% equity ownership interest in you, or in your general partner if you are a limited partnership, unless modified by us in our sole discretion. (This requirement does not apply if you were a publicly-held entity or a wholly-owned subsidiary of a publiclyheld entity as of the date of the first franchise-related agreement between you and us.) The Development Principal must be a member of the Continuity Group and have full control over the day-to-day development of the Franchised Restaurants. Unless you have named, and we have approved, a Multi-Unit Development Manager (discussed below), the Development Principal must: (1) devote full time and best efforts to supervising the development of the Franchised Restaurants; and (2) maintain his/her primary residence within a reasonable driving distance of the Development Territory, unless waived in writing by us. The Development Principal will be required to successfully complete our development training and any additional training required by us. If you are developing restaurants in multiple markets that are franchised by us or our affiliates, an individual meeting the above qualifications will serve as the Development Principal in at least one market.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 59–61)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, the requirement for a Development Principal to own at least a 10% equity ownership interest does not apply to franchisees that were publicly-held entities or wholly-owned subsidiaries of publicly-held entities on the date of their first franchise-related agreement with Carls Jr. This equity ownership can be in the franchisee itself or in the general partner if the franchisee is a limited partnership, unless Carls Jr. modifies this requirement at its discretion.
The Development Principal must be part of the Continuity Group and have full control over the daily development of the franchised restaurants. Unless a Multi-Unit Development Manager is appointed and approved by Carls Jr., the Development Principal must dedicate their full time and best efforts to supervising the development of the franchised restaurants and live within a reasonable driving distance of the Development Territory, unless Carls Jr. waives this requirement in writing. The Development Principal will also need to complete Carls Jr.'s development training and any additional required training.
This exemption from the equity ownership requirement could be a significant benefit for larger, publicly-held companies looking to expand their portfolio with Carls Jr. franchises, as it removes the need for a specific individual to hold a substantial equity stake. However, the Development Principal still needs to meet all other requirements, such as being part of the Continuity Group, having control over development activities, and completing the necessary training. Prospective franchisees should carefully consider these obligations and ensure they have a qualified individual to serve as the Development Principal.