What rights does Chicken Guy have to inspect a franchisee's records?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
have the right, in its reasonable discretion, to require that Franchisee, at Franchisee's expense, submit audited financial statements prepared by a certified public accounting firm acceptable to Chicken Guy for any fiscal year or any period or periods of a fiscal year.
- D. Other Reports. Franchisee shall submit to Chicken Guy, for review or auditing, such other forms, reports, records, information and data as Chicken Guy may reasonably designate, in the form and at the times and places reasonably required by Chicken Guy, upon request and as specified from time to time in the Manual or otherwise in writing.
- E. Public Filings. If Franchisee is or becomes a publicly-held entity in accordance with other provisions of this Agreement, Franchisee shall send to Chicken Guy copies of all reports (including responses to comment letters) or schedules that Franchisee may file with the U.S. Securities and Exchange Commission (certified by Franchisee's chief executive officer to be true, correct, complete and accurate) and copies of any press releases it may issue, within 3 days of the filing of those reports or schedules or the issuance of those releases.
F. Audit Rights.
- (1) Chicken Guy or its designee shall have the right at all reasonable times, both during and after the term of this Agreement, to inspect, copy and audit Franchisee's books, records, and federal, state and local tax returns, and such other forms, reports, information and data as Chicken Guy reasonably may designate, applicable to the operation of the Franchised Restaurant. If an inspection or audit discloses an understatement of Gross Sales, Franchisee shall pay Chicken Guy, within 10 days after receipt of the inspection or audit report, the deficiency in the royalty fees and advertising contributions plus interest (at the rate and on the terms provided in Section 7.G.) from the date originally due until the date of payment. If an inspection or audit is made necessary by Franchisee's failure to furnish reports or supporting records as required under this Agreement, or to furnish such reports, records or information on a timely basis, or if an understatement of Gross Sales for the period of any audit is determined by any audit or inspection to be greater than 2%, Franchisee also shall reimburse Chicken Guy for the reasonable cost of the audit or inspection including, without limitation, the charges of attorneys and independent accountants, and the travel expenses, room, board and compensation of Chicken Guy's employees or designees involved in the audit or inspection. The foregoing remedies shall be in addition to all other remedies and rights available to Chicken Guy under this Agreement or applicable law.
- (2) If Franchisee fails to provide Chicken Guy on a timely basis with the records, reports and other information required by this Agreement or, upon request of Chicken Guy, with copies of the same, Chicken Guy or its designee shall have access at all reasonable times (and as often as necessary) to Franchisee's books and records for the purpose, among other things, of preparing the required records, reports and other information. Franchisee promptly shall reimburse Chicken Guy or its designee for all costs and expenses associated with Chicken Guy's obtaining such records, reports or other information.
9. ADVERTISING
**A.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, Chicken Guy retains significant rights to inspect a franchisee's records, both during and after the franchise term, to ensure compliance and accuracy in reporting. Chicken Guy, or its designee, can inspect, copy, and audit the franchisee's books, records, and tax returns at all reasonable times. This includes federal, state, and local tax returns, as well as any other forms, reports, information, and data that Chicken Guy deems necessary for the operation of the franchised restaurant.
If an audit reveals an understatement of gross sales, the franchisee is responsible for paying the deficiency in royalty fees and advertising contributions, along with interest, within 10 days of receiving the audit report. The interest is calculated from the original due date until the payment date, as specified in Section 7.G of the agreement. Furthermore, if the audit is required due to the franchisee's failure to provide timely or accurate reports and records, or if the understatement of gross sales exceeds 2% for any audit period, the franchisee must reimburse Chicken Guy for the reasonable costs of the audit. These costs may include charges from attorneys and independent accountants, as well as travel expenses, room, board, and compensation for Chicken Guy's employees or designees involved in the audit.
In cases where the franchisee fails to provide the necessary records, reports, and information, Chicken Guy, or its designee, has the right to access the franchisee's books and records at all reasonable times and as often as necessary to prepare the required documentation. The franchisee is then responsible for reimbursing Chicken Guy for all costs and expenses associated with obtaining these records, reports, or other information. Chicken Guy also has the right, at any reasonable time and without prior notice, to inspect and copy any books, records, and documents relating to the operation of the franchised restaurant, or require the franchisee to send copies of these documents to Chicken Guy or its designee.
These audit and inspection rights are in addition to any other remedies and rights available to Chicken Guy under the Franchise Agreement or applicable law. This ensures that Chicken Guy can maintain oversight and control over the financial and operational aspects of its franchised restaurants, while also placing a significant responsibility on franchisees to maintain accurate records and comply with reporting requirements.