Is Closet Storage Concepts required to segregate royalty funds received from franchisees?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties received by Franchisor pursuant to this Section shall not be deemed trust funds nor shall Franchisor be required to segregate such funds in any way, but they shall be deemed general funds of Franchisor for all purposes.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, royalty fees paid by franchisees are not held in a trust or segregated. The 2025 FDD states that Closet Storage Concepts is not required to segregate royalty funds in any way. Instead, these funds are considered general funds of Closet Storage Concepts and can be used for any purpose the company deems appropriate.
This means that franchisees' royalty payments are immediately available for Closet Storage Concepts to use for operational expenses, investments, or other business activities. There is no restriction on how Closet Storage Concepts can utilize these funds.
For a prospective franchisee, this is important to understand because it means that royalty payments are not protected in a separate account. In the event of financial difficulties for Closet Storage Concepts, these funds could be at risk along with the company's other assets. This arrangement is fairly common in franchising, as most franchisors treat royalty payments as general revenue rather than holding them in escrow or trust.