During the Checkersrallys franchise term, can an owner's immediate family member have a controlling ownership interest in a Competitive Business?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
- 7.02 In-Term Covenants.You acknowledge that we have granted you the franchise in consideration of, and reliance upon, your agreement to deal exclusively with us. You therefore agree that, during the Term and any successor franchise term, neither you, any of your Owners, nor any of your or your Owners' Immediate Family will (without our prior consent, which consent we may condition or withhold for any or no reason):
- (a) have any direct or indirect controlling or non-controlling ownership interest as an owner – whether of record, beneficially, or otherwise – in a Competitive Business, wherever located or operating (except that equity ownership of less than five percent (5%) of a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not be deemed to violate this subparagraph);
- (b) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (c) divert or attempt to divert any actual or potential business or customer of any Restaurant to a Competitive Business; or
- (d) engage in any other activity which, in our sole opinion, might be injurious or prejudicial to the goodwill associated with the Marks or the System.
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, franchisees, their owners, and their immediate family members face restrictions regarding involvement with competitive businesses during the franchise term. Specifically, without prior consent from Checkersrallys, franchisees, their owners, and their immediate family are prohibited from holding any direct or indirect controlling or non-controlling ownership interest in a Competitive Business. A Competitive Business is defined as any business that operates as a restaurant or food-service provider deriving more than 20% of its revenue from selling hamburgers, cheeseburgers, and hot dogs in a fast-food, quick-service, drive-thru, or drive-in format, or grants franchises/licenses to others to operate such a business.
This restriction has significant implications for prospective Checkersrallys franchisees and their families. It means that during the term of the franchise agreement, they cannot own or invest in competing fast-food businesses without Checkersrallys's approval. This includes not only direct ownership but also indirect controlling or non-controlling interests. The FDD specifies that owning less than 5% of a publicly traded Competitive Business does not violate this rule, provided that neither the individual nor the franchisee controls the company.
Checkersrallys retains the right to condition or withhold consent for any involvement in a Competitive Business, providing them with substantial control over the franchisee's and their family's business activities. This clause protects Checkersrallys's market position and prevents franchisees from diverting resources or knowledge to competing ventures. Franchisees need to be aware of these restrictions and seek consent from Checkersrallys before engaging in any business activities that could be considered competitive. This ensures compliance with the franchise agreement and avoids potential conflicts or breaches.