Does the Cream FDD prohibit franchisees from having an indirect ownership interest in a Competitive Business?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
We have granted you the rights in this Agreement in consideration of and reliance upon your agreement to deal exclusively with us. You therefore agree that, during the Term, you and your owners agree not to (and to use each of your best efforts to cause each of your respective current and former spouses, immediate family members, owners, officers, directors, representatives, affiliates, successors and assigns not to):
- (1) have any direct or indirect interest as an owner whether of record, beneficially, or otherwise – in a Competitive Business (defined below), wherever located or operating (except that equity ownership of less than 5% of a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not be deemed to violate this subparagraph);
- (2) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating; or
- (3) divert or attempt to divert any actual or potential business or customer of any Jeni's Ice Creams Scoop Shop to a Competitive Business.
The term "Competitive Business" means any business (excluding any Jeni's Ice Creams Scoop Shop operated under a franchise agreement with us) operating or granting franchises or licenses to others to operate any business for which ice cream, ice cream-based desserts or drinks, and/or other frozen desserts or drinks, or similar products represents more than 10% of the total gross revenue.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to the 2025 Cream FDD, franchisees are restricted from having a direct or indirect ownership interest in a Competitive Business during the term of the agreement. This restriction extends not only to the franchisee but also to their owners, current and former spouses, immediate family members, officers, directors, representatives, affiliates, successors, and assigns. A Competitive Business is defined as any business (excluding other Cream locations) that operates or franchises businesses where ice cream or similar products account for more than 10% of total gross revenue.
However, there is an exception to this restriction. Franchisees can hold equity ownership of less than 5% in a Competitive Business if its stock or ownership interests are publicly traded on a recognized United States stock exchange. This exception allows for minor investments in publicly traded companies that might be considered competitors without violating the franchise agreement.
After the termination or expiration of the franchise agreement, the non-compete extends for two years. During this period, the franchisee and related parties are prohibited from having a direct or indirect ownership interest in a Competitive Business or performing services for one, specifically within the Development Area or within a 5-mile radius of any other Cream location. This post-term restriction is common in franchising to protect the brand's market share and customer relationships.
Cream's definition of 'Competitive Business' is important for prospective franchisees to understand, as it focuses on businesses where ice cream and related products constitute a significant portion of revenue. The FDD also clarifies that the obligations related to non-competition survive the termination or expiration of the agreement, emphasizing the ongoing nature of these restrictions.