During the term of the franchise, can a Checkersrallys franchisee have an ownership interest in a Competitive Business?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
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 Checkers or Rally's-branded restaurant to a Competitive Business; or
Source: Item 23 — RECEIPTS (FDD pages 92–384)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, franchisees are restricted from having certain ownership interests in competitive businesses during the term of the franchise agreement. Specifically, franchisees, their owners, and their immediate family members are prohibited from holding any direct or indirect controlling or non-controlling ownership interest in a Competitive Business, regardless of its location. 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 that grants franchises or licenses to others to operate such a business.
However, there is an exception to this restriction. Franchisees can hold equity ownership of less than 5% of a Competitive Business if its stock or other ownership interests are publicly traded on a recognized United States stock exchange. This exception allows for minor investments in publicly traded companies that might technically be considered competitive without violating the franchise agreement.
In addition to ownership restrictions, franchisees are also prohibited from performing services for a Competitive Business in any capacity, including as a director, officer, manager, employee, consultant, representative, or agent. Franchisees must also avoid diverting or attempting to divert any actual or potential business or customers from any Checkers or Rally's-branded restaurant to a Competitive Business. These in-term covenants are designed to protect Checkersrallys's market position and prevent franchisees from using their knowledge and resources to benefit competing businesses.