Does the non-compete agreement for Closet Storage Concepts apply to equity owners of the franchisee?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
sible for selecting, retaining and paying its employees; the payment of all invoices for the purchase of inventory and goods and services for use in the Franchised Business; and determining whether, and on what terms, to obtain any financing or credit which Franchisee deems advisable or necessary for the conduct of the Franchised Business.
6.4 Noncompetition.
6.4.1 During the Term of This Agreement. During the term of this Agreement, neither Franchisee, nor its equity owners shall, directly or indirectly, for itself or through, on behalf of, or in conjunction with any other person, partnership or corporation own, maintain, engage in, be employed by, or have any interest in any other business which offers or sells products or services competitive with those sold or offered under the Closet & Storage Concepts System or the More Space Place System (a "Competing Business").
During the term of this Agreement, regardless of the cause, neither Franchisee, nor its equity owners shall, directly or indirectly, for itself or through, on behalf of, or in conjunction with any other person, partnership or corporation own, maintain, engage in, be employed by, or have any interest in any company which grants franchises or licenses for any business competing in whole or in part with Franchisor.
6.4.2 After the Term of This Agreement. For a period of 2 years after the expiration, nonrenewal, transfer or termination of this Agreement, regardless of the cause, neither Franchisee, nor its equity owners shall, directly or indirectly, for itself or through, on behalf of, or in conjunction with any other person, partnership or corporation own, maintain, engage in, be employed by, or have any interest in any other Competing Business within the Territory or a radius of 20 miles from the Territory or any other Closet & Storage Concepts or More Space Place company owned or franchised business in operation or for which a franchise agreement has been signed, as of the date of expiration and nonrenewal, transfer or termination of this Agreement; provided, however, Franchisee may continue to operate any other Closet & Storage Concepts or More Space Place franchises for which Franchisee and Franchisor have a current franchise agreement.
For a period of 2 years after the expiration, nonrenewal, transfer or termination of this Agreement,
regardless of the cause, neither Franchisee, nor its equity owners shall, directly or indirectly, for itself or through, on behalf of, or in conjunction with any other person, partnership or corporation solicit business from customers of Franchisee's former Franchised Business for any competitive business purpose nor solicit any employee of Franchisor or any other Closet & Storage Concepts or More Space Place System franchisee to discontinue his or her employment.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts's 2025 Franchise Disclosure Document, the non-compete agreement extends to the franchisee's equity owners both during the term of the agreement and for a period of two years after the agreement's expiration, nonrenewal, transfer, or termination. This means that equity owners are restricted from engaging in any business that competes with Closet Storage Concepts or any business that grants franchises or licenses for businesses that compete with Closet Storage Concepts. This restriction applies within the territory granted to the franchisee or within a 20-mile radius of that territory.
Specifically, during the term of the agreement, equity owners cannot directly or indirectly own, maintain, engage in, be employed by, or have any interest in a Competing Business. After the termination of the agreement, this restriction continues for two years, preventing equity owners from involvement in any Competing Business within the specified geographic area. However, this does not prevent the franchisee from continuing to operate other Closet Storage Concepts franchises for which they have a current agreement with the franchisor.
There is an exception to this non-compete for ownership of a small stake in a publicly-owned entity. The non-compete terms do not apply to the equity owners if they have a beneficial interest of less than 5% in the outstanding securities or partnership interests in any publicly-held entity.
Closet Storage Concepts also requires spouses of franchisees to sign a Confidentiality, Non-Disclosure, and Non-Competition Agreement. Furthermore, the franchisee must ensure that its officers, directors, equity owners, and employees (who have received initial training from Closet Storage Concepts) also execute a confidentiality agreement with similar provisions. This comprehensive approach ensures that a wide range of individuals connected to the franchise are bound by confidentiality and non-compete obligations, protecting Closet Storage Concepts's business interests.