For a Fat Shack franchise, what does the term 'transfer' include regarding the franchisee entity?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
If Franchisee is a corporation, partnership, limited liability company or other business entity, the following additional conditions must be met, along with any other conditions as may be established by FSI for entity franchisees:
- a. Contemporaneously with the business entity acquiring the franchise rights, thereafter upon the issuance or transfer of any ownership interests in the business entity or the appointment or election of any person as director, officer, member or manager of the business entity, and at any other time requested by FSI, the shareholders, members, partners, other owners, directors, officers, managers (as applicable), and any other individuals as designated by FSI will execute the Guaranty and Assumption of Franchisee's Obligations attached hereto as Exhibit V and incorporated herein by reference, personally guaranteeing full payment and performance of Franchisee's obligations to FSI and individually undertaking to be bound, jointly and severally, by all the terms of this Agreement.
- b. No shares in the capital of such corporation or other interest in the business entity shall be issued nor shall Franchisee directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, sell, assign, transfer, convey, donate, pledge, mortgage or otherwise encumber any such shares or other interest or other interest or offer or attempt to do so or permit the same to be done without FSI's prior written consent. Such actions shall be deemed a transfer, as defined in Section 17.1, and subject to the requirements of Article 17 below.
- c. The business entity shall maintain stop transfer instructions against the transfer of ownership on its records subject to the restrictions of this Agreement and shall have all outstanding certificates of ownership endorsed with the following legend printed conspicuously upon the face of each certificate:
The transfer of the shares represented by this certificate is subject to the terms and conditions of a certain Franchise Agreement with Fat Shack Inc..
d. The articles of incorporation or organization and by-laws, operating agreement or other governing documents of the business entity shall provide that its objectives or business is confined exclusively to the operation of the FAT SHACK Restaurant as provided for in this Agreement, and recite that the issuance and transfer of any ownership interest in the business
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, if the franchisee is a business entity such as a corporation, partnership, or limited liability company, specific conditions apply to the issuance or transfer of ownership interests. Any direct or indirect, voluntary or involuntary sale, assignment, transfer, conveyance, donation, pledge, mortgage, or encumbrance of shares or other interests in the business entity is considered a transfer. This also includes any attempt to do so without Fat Shack's prior written consent.
To ensure compliance, the business entity must maintain stop transfer instructions against the transfer of ownership on its records, subject to the restrictions outlined in the Franchise Agreement. All outstanding certificates of ownership must be endorsed with a legend indicating that the transfer of shares is subject to the terms and conditions of the Franchise Agreement with Fat Shack Inc.
Furthermore, the governing documents of the business entity, such as articles of incorporation or organization, by-laws, or operating agreements, must stipulate that its business is exclusively confined to the operation of the Fat Shack Restaurant as outlined in the agreement. These documents must also state that the issuance and transfer of any ownership interest in the business is subject to the restrictions of the Franchise Agreement. This ensures that Fat Shack maintains control over who is involved in the ownership and operation of the franchise.