What is the exception to the non-compete clause regarding ownership of shares in a publicly traded company for a Fitstop franchisee?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
- 18.3.3 Without our prior written consent, you shall not, directly or indirectly, engage in, acquire any financial or beneficial interest (including interests in corporations, partnerships, trusts, unincorporated associations, or joint ventures) in, or become a landlord for any business, which is similar to the Franchised Business, from a physical location within 25 miles of (a) the Premises, (b) the perimeter of the Designated Territory, or (c) the location of any other System Business that is open or under development as of the date this Agreement is terminated or expires, except that the Parties agree and acknowledge that this covenant shall not be applicable to ownership of less than 2% of the shares of a company whose shares are listed and traded on a national or regional securities exchange by Franchise or any Franchise Owner;
Source: Item 23 — RECEIPTS (FDD pages 50–135)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, there is an exception to the non-compete clause for franchisees regarding the ownership of shares in publicly traded companies. Specifically, the non-compete restrictions do not apply if a franchisee owns less than 2% of the shares of a company whose shares are listed and traded on a national or regional securities exchange. This exception applies to both the franchisee and any franchise owner.
This provision allows Fitstop franchisees to invest in publicly traded companies, even those that might be considered competitors to some extent, as long as their ownership stake remains below the 2% threshold. This provides franchisees with some flexibility in managing their personal investments without violating the non-compete agreement.
It is important for prospective Fitstop franchisees to understand this exception and ensure that their investment activities remain compliant with the franchise agreement. Exceeding the 2% ownership limit could potentially be considered a breach of the non-compete clause, leading to legal repercussions. Franchisees should consult with legal counsel to ensure full compliance with these terms.