During the Chem Dry franchise agreement term, can a franchisee's spouse have a controlling interest in a 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, during the term of the franchise agreement, neither the franchisee, nor any owner, manager, officer, partner, or director of the franchisee (if an entity), nor their respective spouses and adult offspring, can have a direct or indirect controlling interest in a Competitive Business. However, an equity ownership of less than 2% of a Competitive Business whose shares are publicly traded on a recognized United States securities exchange will not be considered a violation. A Competitive Business is defined as any business that provides or sells carpet or upholstery/drapery cleaning services or products, tile and stone care services or products, spot removal, applying anti-allergen and deodorizer, or protective services or products, Approved Services, or any related or ancillary services or products.
This restriction is in place to protect Chem Dry's confidential information and maintain the integrity of the franchise system. Allowing franchisees or their close family members to hold controlling interests in competing businesses could lead to conflicts of interest and potential misuse of confidential information, which could harm the Chem Dry brand and its franchisees.
This type of restriction is common in franchise agreements to prevent franchisees from directly competing with the franchisor or using the franchisor's proprietary information to benefit a competing business. Prospective franchisees should carefully consider these restrictions and ensure they do not have any existing or planned business interests that could violate the agreement. It is important to note that the restriction extends to spouses and adult offspring, which may impact family business ventures.