Are members of the Continuity Group required to guarantee the franchisee's obligations under the Franchise Agreement and Development Agreement for a Churchs Chicken franchise?
Churchs_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
You must designate a group of individuals and/or entities to serve as your "Continuity Group". The Continuity Group will at all times own at least 51% of the voting securities in you (or if you are a partnership, the Continuity Group will at all times have at least a 51% interest in the operating profits and losses and at least a 51% ownership interest in you). All members of the Continuity Group must jointly and severally guarantee your payment and performance under the Franchise Agreement and the Development Agreement and must sign a written guaranty agreement ("Guaranty"). 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
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 members of the Continuity Group must jointly and severally guarantee the franchisee's payment and performance under both the Franchise Agreement and the Development Agreement. This guarantee is formalized through a written guaranty agreement. The Continuity Group is defined as a group of individuals and/or entities that collectively own at least 51% of the voting securities of the franchisee entity. If the franchisee is a partnership, the Continuity Group must hold at least a 51% interest in the operating profits and losses, as well as a 51% ownership interest in the franchise.
In addition to the Continuity Group, any individuals or entities holding a legal or beneficial interest of 5% or more in the franchisee's equity (referred to as "5% Owners") are also required to sign a Guaranty, agreeing to jointly and severally guarantee the franchisee's payment and performance under the Franchise Agreement and the Development Agreement. However, this requirement can be waived at Churchs Chicken's discretion. Churchs Chicken also retains the right to request personal financial statements from any guarantor periodically.
It is Churchs Chicken's preference that the Guaranty be executed by individuals rather than corporations or LLCs. Therefore, if a 5% Owner is not an individual, Churchs Chicken may require the Guaranty to be executed by individuals who have an indirect ownership interest in the franchisee. This comprehensive guarantee requirement ensures that Churchs Chicken has recourse to multiple parties in the event of default by the franchisee, providing a layer of financial security for the franchisor.
This requirement is fairly standard in the franchise industry, as franchisors typically seek to ensure that franchisees are fully committed to the business and have sufficient financial backing. The joint and several liability means that each guarantor is responsible for the entire debt, not just a portion, which can be a significant risk for those involved. Prospective Churchs Chicken franchisees should carefully consider the implications of these guarantee requirements and ensure that all members of their Continuity Group and 5% Owners are fully aware of their obligations.