Is there an exception to the non-competition clause in the Cream franchise agreement for ownership of publicly traded stock in a competitive business?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
to do all other lawfully permitted acts to further the purposes of this Section with the same legal force and effect as if executed by you.
7. RESTRICTIVE COVENANTS.
A. NON-COMPETITION DURING TERM.
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;
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, there is a limited exception to the non-competition clause regarding ownership of stock in a competitive business. During the term of the franchise agreement, franchisees and their owners are generally prohibited from having any direct or indirect interest in a Competitive Business. A "Competitive Business" is defined as any business (excluding other Cream franchises) that operates or franchises businesses where ice cream, ice cream-based desserts/drinks, or similar frozen products account for more than 10% of total gross revenue.
However, the exception states that owning less than 5% of a Competitive Business will not violate the non-competition agreement if the company's stock is publicly traded on a recognized United States stock exchange. This means a Cream franchisee can invest a small amount in a publicly traded competitor without breaching the franchise agreement.
This exception provides a minor degree of investment flexibility for Cream franchisees. However, it's crucial to remain below the 5% ownership threshold to avoid violating the non-competition terms. Additionally, this exception only applies to publicly traded companies on recognized U.S. stock exchanges, not privately held competitors. Franchisees should consult with legal counsel to ensure compliance if considering such investments.