What are the specific obligations of a Cinnaholic franchisee regarding the payment of taxes and other government fees (Item 9), and how does this relate to the franchisor's financial reporting requirements (Item 6)?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
of such insurance, Franchisee, as agreed above, is and shall be responsible for all loss or damage and contractual liability to third persons originating from or in connection with the operation of the franchised business and for all claims or demands for damages to property or for injury, illness or death of persons directly or indirectly resulting therefrom.
18.3. Taxes. Franchisee shall promptly pay when due all taxes levied or assessed by reason of its operation and performance under this Agreement including, but not limited to, if applicable, state employment tax, state sales tax (including any sales or use tax on equipment purchased or leased) and all other taxes and expenses of operating the Bakery. In no event shall Franchisee permit a tax sale or seizure by levy or execution or similar writ or warrant to occur against the Bakery, the Franchised Site or any tangible personal property used in connection with the operation of the Bakery.
19. ASSIGNMENT
- 19.1. Assignment by Franchisor. This Agreement may be unilaterally assigned by the Franchisor and shall inure to the benefit of its successors and assigns. Franchisee agrees and affirms that Franchisor may sell itself, its assets, the Marks and/or the CINNAHOLIC® System to a third-party; may go public, may engage in private placement of some or all of its securities; may merge, acquire other corporations, or be acquired by another corporation; and/or may undertake a refinancing, recapitalization, leveraged buyout or other economic or financial restructuring.
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, franchisees are responsible for promptly paying all taxes related to their operations. This includes, but is not limited to, state employment tax and state sales tax, including any sales or use tax on equipment purchased or leased for the bakery. Franchisees must also prevent any tax sale or seizure of the bakery, franchised site, or tangible personal property used in the bakery's operation. This obligation ensures that the franchisee remains in good standing with government authorities and avoids any disruptions to their business.
Cinnaholic, as a limited liability corporation, has elected to be taxed as such for federal and state income tax purposes. This means that the company's income and expenses pass through directly to its members and are reported on their individual income tax returns. This election affects how Cinnaholic reports its financial performance and obligations, including tax liabilities. The company's financial statements are prepared on an accrual basis, recognizing revenues when earned and expenses when a liability is incurred, without regard to the actual receipt or disbursement of funds.
The FDD states that Cinnaholic's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, requiring management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates could potentially include items such as deferred revenue related to franchise fees or potential liabilities related to tax obligations. The company's accounting policies and tax structure influence how it reports revenue, expenses, and potential tax liabilities in its financial statements, which are audited to ensure compliance with accounting standards.