Is a Chem-Dry franchisee allowed to own less than 2% of a publicly traded Competitive Business?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
SEE acknowledges and agrees that CDI would be unable to protect the Confidential Information against unauthorized use or disclosure if franchisees of CHEM-DRY Businesses were permitted to hold interests or otherwise participate in or promote any Competitive Business (as defined below).
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- FRANCHISEE therefore agrees that during the term of this Agreement, neither FRANCHISEE, nor any Owner, manager, officer, partner or director of FRANCHISEE, if an Entity, and any of their respective spouses and adult offspring shall:
- a. have any direct or indirect controlling or non-controlling 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 two percent (2%) of a Competitive Business whose shares or other forms of ownership interest are publicly traded on a recognized United States securities exchange will not be deemed to violate this subparagraph);
- b. perform services as a director, officer, manager, employee, consultant, contractor, representative, or agent for a Competitive Business, wherever located or operating;
- c.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem-Dry's 2024 Franchise Disclosure Document, a franchisee is permitted to hold a small equity ownership in a publicly traded competitor. Specifically, the FDD states that a Chem-Dry franchisee can own less than 2% of a Competitive Business if its shares are publicly traded on a recognized United States securities exchange. A "Competitive Business" is defined as any business that offers or franchises carpet/upholstery cleaning, tile and stone care, spot removal, anti-allergen application, deodorizer, protective services, or related services/products.
This allowance provides a limited exception to the general restriction on franchisees having interests in competing businesses. The rationale is that a very small ownership stake in a large, publicly traded company is unlikely to give the franchisee significant influence or access to confidential information that could harm Chem-Dry. This clause aims to protect Chem-Dry's confidential information and maintain the integrity of its franchise system.
However, this exception is narrowly defined. The Competitive Business must be publicly traded on a recognized U.S. exchange, and the franchisee's ownership must remain below the 2% threshold. Any ownership stake of 2% or more, or involvement in a privately held competitor, would violate the franchise agreement. Furthermore, the franchisee is still prohibited from performing services for a Competitive Business, soliciting Chem-Dry customers for a Competitive Business, or engaging in any activity that could harm the goodwill of the Chem-Dry brand.