Is the issuance of additional securities in the Cream franchise considered a 'transfer' requiring approval?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
The rights and duties this Agreement creates are personal to you (and if you are conducting business as an Entity, each of your owners) and we have granted you the Development Rights in reliance upon our perceptions of your (or your owners') individual or collective character, skill, aptitude, attitude, business ability, and financial capacity. Accordingly, none of the following may be transferred, mortgaged, pledged, or encumbered, without our prior written approval: (1) this Agreement (or any interest in this Agreement), (2) your Development Rights, or (3) any direct or indirect ownership interest in you. A transfer of your Development Rights may be made only with a transfer of this Agreement. Any transfer without our approval is a breach of this Agreement and has no effect. In this Agreement, the term "transfer" includes a voluntary, involuntary, direct, or indirect assignment, sale, gift, or other disposition, including transfer by reason of merger, consolidation, issuance of additional securities, death, disability, divorce, insolvency, encumbrance, foreclosure, surrender or by operation of law, and/or any transfer of control or management of the Development Rights.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, the issuance of additional securities is considered a 'transfer' that requires prior written approval from Cream. The document defines "transfer" broadly to include various dispositions, whether voluntary, involuntary, direct, or indirect. This definition specifically encompasses the issuance of additional securities, highlighting that Cream wants to maintain control over who has an ownership stake in its franchisees.
This requirement means that if a Cream franchisee wants to raise capital by issuing new stock or other securities, they must first seek and obtain approval from Cream. This approval process allows Cream to evaluate the potential impact of the new security holders on the franchise and ensure that the new owners meet Cream's standards. Cream's approval is based on their perception of the franchisee's and their owners' character, skills, aptitude, attitude, business ability, and financial capacity.
The Cream franchise agreement emphasizes that the rights and duties created are personal to the franchisee and their owners. This underscores Cream's interest in maintaining a close relationship with its franchisees and ensuring that any changes in ownership or control are subject to their review and approval. Failing to obtain Cream's approval for such a transfer constitutes a breach of the franchise agreement and renders the transfer ineffective.