Is a Fat Shack franchisee prohibited from owning securities in a Competitive Business under certain conditions?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
The term "Competitive Business" as used in this Agreement shall mean any business operating, or granting franchises or licenses to others to operate a restaurant or other business deriving more than 10 percent of its gross receipts, excluding gross receipts relating to the sale of alcoholic beverages, from the sale of sandwiches, burgers and wings (other than another FAT SHACK Restaurant operated by Franchisee); provided, however, neither Franchisee nor the other Bound Parties shall be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent 2 percent or less of that class of securities issued and outstanding.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, a franchisee is generally restricted from having a direct or indirect interest in a "Competitive Business." A Competitive Business is defined as any business that operates a restaurant or grants franchises for restaurants that derive more than 10% of their gross receipts (excluding alcohol sales) from selling sandwiches, burgers, and wings. This restriction applies during the term of the Franchise Agreement.
However, there is an exception to this rule. A Fat Shack franchisee is not prohibited from owning securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter, and if they represent 2% or less of the outstanding securities of that class. This exception allows franchisees to make minor investments in publicly traded companies that might be considered competitive without violating the franchise agreement.
This clause aims to protect Fat Shack's market position and prevent franchisees from directly benefiting from or influencing competing businesses while still allowing for minor, passive investments in the stock market. Prospective franchisees should be aware of this restriction and ensure their investment activities comply with these terms to avoid breaching the franchise agreement.