For a Carls Jr. franchise, what is the franchisee's obligation regarding changes to the Continuity Group?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
If you are any type of business entity other than a sole proprietorship, we and you will identify a "Continuity Group." The members of the Continuity Group will include: (1) the Development Principal; (2) the Operating Principal; (3) all holders of a direct or indirect legal or beneficial interest of 10% or more ("10% Owners") in Franchisee; (4) if Franchisee is a limited partnership, all 10% Owners in Franchisee's general partner; and (5) if any 10% Owner of Franchisee is a corporation or limited liability company, all 10% Owners in the entity that is a 10% Owner of Franchisee. You must notify us of any change in the Continuity Group. Each member of the Continuity Group and their spouses, if applicable, is bound by the confidentiality and non-competition restrictions described in Item 17 and must sign a guarantee assuming and agreeing to discharge all of your obligations to us unless we, in our sole discretion, waive or modify this requirement.
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, if the franchisee is any type of business entity other than a sole proprietorship, Carls Jr. and the franchisee will identify a "Continuity Group." The members of the Continuity Group include the Development Principal, the Operating Principal, all holders of a direct or indirect legal or beneficial interest of 10% or more in Franchisee, if Franchisee is a limited partnership, all 10% Owners in Franchisee's general partner, and if any 10% Owner of Franchisee is a corporation or limited liability company, all 10% Owners in the entity that is a 10% Owner of Franchisee.
The franchisee must notify Carls Jr. of any change in the Continuity Group. Each member of the Continuity Group and their spouses, if applicable, is bound by the confidentiality and non-competition restrictions described in Item 17 and must sign a guarantee assuming and agreeing to discharge all of the franchisee's obligations to Carls Jr. unless Carls Jr., in its sole discretion, waives or modifies this requirement.
This means that if the ownership or management structure of the Carls Jr. franchise changes, particularly regarding individuals with significant equity or operational roles, the franchisee is obligated to inform Carls Jr. This ensures that Carls Jr. is aware of who is involved in the business and that all key individuals are bound by the franchise agreement's terms, especially concerning confidentiality and non-competition. The requirement for members of the Continuity Group to sign a guarantee underscores their commitment to fulfilling the franchisee's obligations to Carls Jr.