What minimum equity ownership interest must the Development Principal have in the franchisee for a Carls Jr. franchise, unless modified by Carls Jr.?
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 Carls Jr.'s 2025 Franchise Disclosure Document, the Development Principal must maintain a minimum equity ownership interest of 10% in the franchisee entity, or in the general partner if the franchisee is a limited partnership. This requirement can be modified at Carls Jr.'s discretion. However, this equity ownership requirement does not apply if the franchisee was a publicly-held entity or a wholly-owned subsidiary of a publicly-held entity when the initial franchise agreement was established.
The Development Principal is also required to be a member of the Continuity Group, ensuring they have full control over the day-to-day development of the franchised restaurants. Unless a Multi-Unit Development Manager has been appointed and approved by Carls Jr., the Development Principal must devote their full time and best efforts to supervising the development of the franchised restaurants and maintain their primary residence within a reasonable driving distance of the Development Territory, unless this requirement is waived in writing by Carls Jr.
These stipulations ensure that the Development Principal has a vested interest in the success of the Carls Jr. franchise and is actively involved in its development. The requirement for a minimum equity stake aligns the Development Principal's financial interests with those of the franchisor, promoting a commitment to the brand and its standards. The flexibility for Carls Jr. to modify the equity requirement allows for case-by-case adjustments, potentially accommodating different investment structures or franchisee circumstances. Prospective franchisees should discuss with Carls Jr. the specific requirements and any potential modifications to these requirements during their due diligence process.