Are all holders of a legal or beneficial interest of 5% or more in a Churchs Chicken franchise required to sign a Guaranty?
Churchs_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Unless you are a publicly held entity, all holders of a legal or beneficial interest in you of 5% or more of your equity ("5% Owners") also must sign a Guaranty agreeing to jointly and severally guarantee your payment and performance under the Franchise Agreement and the Development Agreement. Our standard Guaranty forms are attached as exhibits to the Franchise Agreement and Development Agreement. The Guaranty contains confidentiality and non-competition covenants that mirror the requirements in the Franchise Agreement and Development Agreement.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 49–50)
What This Means (2025 FDD)
According to Churchs Chicken's 2025 Franchise Disclosure Document, all holders of a legal or beneficial interest of 5% or more in the equity of the franchise, referred to as "5% Owners", must sign a Guaranty. This Guaranty ensures they jointly and severally guarantee the franchisee's payment and performance under both the Franchise Agreement and the Development Agreement.
The document specifies that the Guaranty includes confidentiality and non-competition covenants that align with the requirements outlined in the Franchise Agreement and the Development Agreement. This means that these 5% Owners are not only financially responsible but also bound by the same restrictions regarding confidential information and competitive activities as the primary franchisee.
This requirement is fairly common in franchising, as franchisors like Churchs Chicken seek to ensure that all individuals with significant financial stakes in the franchise are committed to upholding the brand's standards and protecting its interests. By requiring a Guaranty from these owners, Churchs Chicken aims to mitigate the risk of non-compliance or actions that could harm the franchise system. Prospective franchisees should carefully review the standard Guaranty forms attached as exhibits to the Franchise Agreement and Development Agreement to fully understand the obligations and restrictions they impose on 5% Owners.