What documents related to the transferee entity can Desi District Franchise Group request when a franchisee transfers for convenience of ownership?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- 15.3 Transfer for Convenience of Ownership. If Franchisee is an individual, Franchisee may Transfer this Agreement to a corporation or limited liability company formed for the convenience of ownership after at least 15 days' notice to Desi District Franchise Group, if, prior to the Transfer: (1) the transferee provides the information required by Section 2.3; (2) Franchisee provides copies of the entity's charter documents, by-laws (or operating agreement) and similar documents, if requested by Desi District Franchise Group, (3) Franchisee owns all voting securities of the corporation or limited liability company, and (4) Franchisee provides a guaranty in accordance with Section 2.5.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, if a franchisee who is an individual wants to transfer their franchise agreement to a corporation or limited liability company for convenience of ownership, Desi District Franchise Group can request specific documents related to the new entity. This type of transfer requires at least 15 days' notice to Desi District.
Specifically, Desi District may request copies of the transferee entity's charter documents, by-laws (or operating agreement), and similar documents. Additionally, the franchisee must own all voting securities of the corporation or LLC. The franchisee must also provide a guaranty in accordance with Section 2.5 of the franchise agreement.
This means that if you, as a Desi District franchisee, decide to structure your business under a corporate entity for liability or tax reasons, you'll need to be prepared to share the legal and organizational paperwork of that entity with Desi District. This ensures Desi District maintains oversight and that the transfer is indeed for convenience and not a disguised sale to an unapproved third party. It also confirms that the original franchisee maintains control over the business.