During the term of the Checkersrallys franchise, can an owner's immediate family member have a controlling ownership interest in a Competitive Business without Checkersrallys' consent?
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);
Source: Item 22 — CONTRACTS (FDD pages 91–92)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, during the term of the franchise, neither the franchisee, any of their owners, nor any of their or their owners' immediate family members can have a direct or indirect controlling or non-controlling ownership interest in a Competitive Business without Checkersrallys's prior consent. Checkersrallys may condition or withhold this consent for any or no reason. 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 or licenses to others to operate such a business.
However, an exception exists for 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 limited ownership does not violate the restriction. This clause ensures that franchisees and their close family members remain committed to the Checkersrallys system and do not directly compete with it during the franchise term.
This restriction is a standard practice in franchising to protect the brand and maintain the franchisee's focus on the franchised business. Prospective franchisees should carefully consider this restriction, as it limits the business activities of themselves and their immediate family during the term of the Checkersrallys franchise agreement. Franchisees should seek clarification from Checkersrallys regarding what constitutes 'prior consent' and under what conditions such consent may be granted or withheld.