Do the owners of a proposed Chocolate Fish Coffee franchise assignee have to provide a guaranty?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
2.5 Guaranty. If Franchisee is an entity, then Franchisee shall have each Owner sign a personal guaranty of Franchisee's obligations to Chocolate Fish Franchising, in the form of Attachment 3.
(vii) the proposed assignee and its owners and employees undergo such training as Chocolate Fish Franchising may require;
(viii) Franchisee, its Owners, and the transferee and its owners execute a general release of Chocolate Fish Franchising in a form satisfactory to Chocolate Fish Franchising; and
15.3 Transfer for Convenience of Ownership. If Franchisee is an individual, Franchisee may Transfer this Agreement to a corporation or limited liability company formed for the convenience of ownership after at least 15 days' notice to Chocolate Fish Franchising, if, prior to the Transfer: (1) the transferee provides the information required by Section 2.3; (2) Franchisee provides copies of the entity's charter documents, by-laws (or operating agreement) and similar documents, if requested by Chocolate Fish Franchising, (3) Franchisee owns all voting securities of the corporation or limited liability company, and (4) Franchisee provides a guaranty in accordance with Section 2.5.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to the 2024 Chocolate Fish Coffee Franchise Disclosure Document, if the franchisee is an entity, each owner must sign a personal guaranty of the franchisee's obligations to Chocolate Fish Coffee, using the form provided as Attachment 3. This requirement ensures that the franchisor has recourse to the personal assets of the owners should the franchise entity default on its obligations. This is a common practice in franchising, as it provides an additional layer of security for the franchisor.
In the event of a transfer of the franchise, Chocolate Fish Coffee requires that the proposed assignee and its owners undergo any training that Chocolate Fish Coffee may require. Additionally, the franchisee, its owners, the transferee, and its owners must execute a general release of Chocolate Fish Coffee in a form satisfactory to Chocolate Fish Coffee. These stipulations ensure that the new ownership is adequately trained and that all parties release Chocolate Fish Coffee from any potential liabilities related to the transfer.
Furthermore, if a franchisee who is an individual transfers the agreement to a corporation or limited liability company for ownership convenience, the franchisee must provide a guaranty in accordance with Section 2.5. This means that even when transferring ownership to a business entity, the original franchisee remains personally liable for the franchise's obligations. This condition protects Chocolate Fish Coffee's interests by maintaining a direct line of accountability.