Does the post-term non-competition restriction for Cinnaholic apply after a transfer by the franchisee?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition to and not in limitation of any other restrictions on Franchisee contained herein, Franchisee and the Bound Parties agree that they will not, for one year following the effective date of termination or expiration of this Agreement for any reason, or following the date of a Transfer by Franchisee, directly or indirectly, for and on behalf of itself, himself, herself or any other person or entity, (a) have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business or (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business which, in either case, is located or operating within a five mile radius of any CINNAHOLIC® Bakery.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the post-term non-competition agreement applies following a transfer by the franchisee. Specifically, the franchisee and other bound parties agree that for one year following the date of a transfer by the franchisee, they will not have any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business, or perform services for a Competitive Business. This restriction applies to businesses located or operating within a five-mile radius of any Cinnaholic bakery.
For a prospective Cinnaholic franchisee, this means that if they decide to sell or transfer their franchise, they (and other bound parties such as spouses, shareholders, members, partners, and managers) will be restricted from engaging in a competitive business within a five-mile radius of any Cinnaholic location for one year after the transfer. This could limit their ability to work in or own a similar business in the same geographic area.
The term "Competitive Business" is defined in the Cinnaholic Franchise Agreement as any business operating a bakery or food service that derives more than 50% of its revenue from cinnamon rolls. This definition is important because it clarifies the scope of the non-compete agreement, focusing specifically on businesses that directly compete with Cinnaholic's core product offering. The agreement does not prevent the franchisee from owning securities in a Competitive Business if they are listed on a stock exchange or traded on the over-the-counter market and represent 5% or less of the number of shares of that class of securities which are issued and outstanding.
It is important for potential franchisees to fully understand the implications of this post-term non-competition clause, especially if they anticipate selling their franchise in the future. They should consider how this restriction might affect their future career or business opportunities and consult with legal counsel to fully understand their obligations.