For a Carls Jr. franchise, what obligations do members of the Continuity Group and their spouses have regarding confidentiality, non-competition, and guarantees?
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. will identify a "Continuity Group." The members of this group include the Development Principal, the Operating Principal, all holders of a direct or indirect legal or beneficial interest of 10% or more in the franchisee, all 10% owners in the franchisee's general partner if the franchisee is a limited partnership, and all 10% owners in any entity that is a 10% owner of the franchisee if such owner is a corporation or limited liability company. The franchisee must notify Carls Jr. of any change in the Continuity Group.
Each member of the Continuity Group and their spouses, if applicable, are bound by the confidentiality and non-competition restrictions described in Item 17 of the FDD. This means they must not disclose confidential information about the Carls Jr. system and must not engage in any business that competes with Carls Jr. during the term of the franchise agreement and for a specified period afterward.
Furthermore, each member of the Continuity Group and their spouses must sign a guarantee assuming and agreeing to discharge all of the franchisee's obligations to Carls Jr. This guarantee ensures that Carls Jr. has recourse to the personal assets of these individuals if the franchisee fails to meet its financial or other obligations under the franchise agreement. Carls Jr. has the sole discretion to waive or modify this requirement.