What is the role of 'Affiliated Entities' in the Chicken Guy development agreement?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
Execution of Franchise Agreements by Affiliated Entities.** At Developer's request, Chicken Guy will permit the Franchise Agreement for any Franchised Restaurant in the Development Territory to be executed by a corporation, a limited liability company or general or limited partnership formed by Developer to develop and operate the Franchised Restaurant ("Affiliated Entity"), provided all of the following conditions are met: (1) Developer, the Development Principal (defined in Section 8.G.) or Developer's Continuity Group (defined in Section 8.E.) owns at least 51% of the voting securities of a corporate Affiliated Entity, at least 51% of the membership interests in a limited liability company Affiliated Entity or all of the general partnership interests of a partnership Affiliated Entity; (2) the Affiliated Entity conducts no business other than the operation of the Franchised Restaurant; (3) Developer, the Development Principal, the members of Developer's Continuity Group and all holders of a legal or beneficial interest in Developer of 10% or more ("10% Owner(s)") agree to assume full and unconditional liability for, and agree to perform all obligations, covenants and agreements contained in the Franchise Agreement; and (4) all owners of voting securities of a corporate Affiliated Entity, membership interests of a limited liability company Affiliated Entity or partnership interests of a partnership Affiliated Entity possess a good moral character, as determined by Chicken Guy in its sole discretion, and Developer provides Chicken Guy all reasonably requested information to permit Chicken Guy to make such a determination.
Source: Item 23 — RECEIPTS (FDD pages 50–286)
What This Means (2025 FDD)
According to the 2025 Chicken Guy Franchise Disclosure Document, an 'Affiliated Entity' can execute the Franchise Agreement for a Franchised Restaurant within the Development Territory at the Developer's request, subject to specific conditions. These conditions ensure that the Developer maintains significant control and liability. Specifically, the Developer, the Development Principal, or the Developer's Continuity Group must own at least 51% of the voting securities if the Affiliated Entity is a corporation, at least 51% of the membership interests if it's a limited liability company, or all of the general partnership interests if it's a partnership. This ownership stake ensures that the Developer retains control over the Affiliated Entity's operations. The Affiliated Entity must also conduct no business other than operating the Franchised Restaurant, keeping its activities focused solely on the Chicken Guy franchise.
Furthermore, the Developer, the Development Principal, the members of the Developer's Continuity Group, and all holders of a legal or beneficial interest of 10% or more in the Developer must agree to assume full and unconditional liability for all obligations within the Franchise Agreement. This requirement ensures that the individuals with significant stakes in the Developer remain responsible for the financial and operational performance of the franchise, even when it is operated through an Affiliated Entity. All owners of voting securities, membership interests, or partnership interests in the Affiliated Entity must also possess good moral character, as determined by Chicken Guy. This condition allows Chicken Guy to maintain its brand standards and reputation by ensuring that all individuals involved in the franchise operation meet their criteria.
Chicken Guy also requires the Developer to provide all reasonably requested information to permit Chicken Guy to make a determination on the moral character of the owners. This due diligence helps Chicken Guy to mitigate risks associated with the individuals operating the franchise. These stipulations protect Chicken Guy by ensuring that the Developer and its key stakeholders remain heavily invested in the success and proper operation of the franchise, even when delegating the actual operation to an Affiliated Entity. This structure is fairly common in franchising, as it allows for flexibility in business structure while maintaining brand control and accountability.