Is the Operating 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 Operating 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, and be a person acceptable to both us and you. (This requirement does not apply if you were a publicly-held entity or a wholly-owned subsidiary of a publicly-held entity as of the date of the first franchise-related agreement between you and us.) The Operating Principal must be a member of the Continuity Group and have full control over the day-to-day activities of the Franchised Restaurant and those other restaurants (that are franchised by us or our affiliates) operated by you in the same geographic market as the Franchised Restaurant, including control over the standards of operation and financial performance. Unless you have named, and we have approved, a Multi-Unit Manager (discussed below), the Operating Principal must: (1) devote full time and best efforts to the supervision and conduct of the Franchised Restaurant and those other restaurants (that are franchised by us or our affiliates) operated by you in the same geographic market as the Franchised Restaurant; and (2) maintain his/her primary residence within a reasonable driving distance of the Franchised Restaurant, unless waived in writing by us. The Operating Principal will be required to successfully complete the FMTP and any additional training required by us. If you operate restaurants in multiple markets that are franchised by us or our affiliates, an individual meeting the above qualifications will serve as the Operating 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 requirement for the Operating 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 as of the date of their first franchise-related agreement with Carls Jr.
This exemption means that if a franchisee was a publicly-held entity when they initially signed their franchise agreement with Carls Jr., they are not required to ensure that their Operating Principal has a minimum 10% equity stake in the franchise. This provision offers flexibility for larger corporate entities that may have different management structures than individual or privately-owned franchises.
However, even if the 10% equity ownership is waived, the Operating Principal must still be a qualified individual approved by Carls Jr. and the franchisee. They must also be part of the Continuity Group and have full control over the day-to-day operations and financial performance of the franchised restaurant(s) in their geographic market. The Operating Principal is also expected to devote full time and best efforts to the supervision and conduct of the restaurant, and live within a reasonable driving distance, unless otherwise waived by Carls Jr.