During the term of the Cinnaholic agreement, can the Developer's spouse have a beneficial ownership interest in a Competitive Business, regardless of location?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
t forth; and
- (viii) the Marks not being used in any advertising for any Transfer prohibited by Sections 13.2 and 13.3 hereof.
- 13.5. Removal of General Partner. If Developer is a limited partnership, Developer may not remove or appoint, or permit the limited partners to remove or appoint, a new or successor general partner without the prior written consent of Franchisor (even if such appointment is due to the resignation, death or disability of the General Partner).
14. RESTRICTIVE COVENANTS
14.1. Covenants Not to Compete.
- (i) Non-Competition During Term. In addition to and not in limitation of any other restrictions on Developer contained herein, Developer and Developer's spouse, and, if Developer is not an individual, its shareholders, members, partners and managers, as applicable, and their spouses (each, a "Bound Party"), agree that they will not, during the term of this Agreement, 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 (as defined below), regardless of location or (b) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for a Competitive Business, regardless of location.
- (ii) Post-Term Non-Competition. In addition to and not in limitation of any other restrictions on Developer contained herein, Developer 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 Developer, directly or indirectly, for and on behalf of itself, himself, herself or any other person or entity, (a)
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, during the term of the agreement, the developer and the developer's spouse are restricted from having any direct or indirect interest as a disclosed or beneficial owner in a Competitive Business, regardless of its location. This restriction is in place to protect Cinnaholic's business interests and confidential information.
A "Competitive Business" is defined as any business operating a bakery or food service that is engaged in the retail or wholesale production or sale of baked goods, including cinnamon rolls, and derives more than 50% of its revenue from cinnamon roll sales. This definition excludes other Cinnaholic bakeries operated under a franchise agreement with Cinnaholic.
However, there is an exception: the developer or their spouse is not prohibited from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, and represent 5% or less of the outstanding shares of that class of securities. This exception allows for minor, passive investments in publicly traded companies that might be considered competitive.