What obligations of the Fat Shack franchisee are guaranteed under the Guaranty and Assumption agreement?
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..
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, the Guaranty and Assumption of Franchisee's Obligations agreement ensures that if the franchisee is a business entity, certain individuals associated with that entity (shareholders, members, partners, directors, officers, and managers) must personally guarantee the franchisee's obligations to Fat Shack. This agreement, outlined in Exhibit V of the Franchise Agreement, requires these individuals to guarantee the full payment and performance of the franchisee's duties to Fat Shack. They also individually agree to be bound, jointly and severally, by all the terms of the Franchise Agreement.
This means that these individuals are not only guaranteeing that the Fat Shack franchise will meet its financial and operational obligations, but they are also personally liable if the franchise fails to do so. This personal liability extends to all terms of the Franchise Agreement, making the guarantors responsible for any breaches. Fat Shack may request these individuals to execute the Guaranty and Assumption agreement when the business entity acquires the franchise rights, upon any changes in ownership or management, or at any other time deemed necessary by Fat Shack.
This requirement is a common practice in franchising, as it provides the franchisor with an additional layer of security. By having individuals personally guarantee the franchisee's obligations, Fat Shack reduces its risk in case the franchise-owning entity encounters financial difficulties or fails to comply with the Franchise Agreement. Prospective Fat Shack franchisees who operate through a business entity should be aware that they will need to identify individuals willing to take on this personal guarantee, and those individuals should carefully review the Franchise Agreement to understand the full extent of their obligations and potential liabilities.
Furthermore, the agreement stipulates that no shares or interests in the business entity can be issued, sold, transferred, or encumbered without Fat Shack's prior written consent. This restriction ensures that Fat Shack maintains control over who is involved in the ownership and management of the franchise, as changes in ownership could impact the franchise's operations and compliance with the Franchise Agreement. The business entity must also maintain stop transfer instructions against the transfer of ownership on its records and endorse all outstanding certificates of ownership with a legend indicating that the transfer of shares is subject to the terms of the Franchise Agreement with Fat Shack.