During the term of the Floyds 99 Franchise Agreement, can a member of the Associate's immediate family have a controlling interest in a Competitive Business?
Floyds_99 Franchise · 2025 FDDAnswer from 2025 FDD Document
Therefore, other than the FLOYD'S 99 Shop(s) authorized by separate agreement(s) with Franchisor, neither Developer nor any of Developer's officers, directors, shareholders, Principal Managers, Barbershop managers, equity owners, members, managers or partners, nor any member of his or their immediate families, shall during the term of this Agreement:
- (a) have any direct or indirect controlling interest as a disclosed or beneficial owner in a "Competitive Business" as defined below;
The term "Competitive Business" as used in this Agreement shall mean any business operating or granting franchises or licenses to others to operate, either (i) a retail hair care business deriving more than 5% of its gross sales from the sale of haircuts or hair care products; or (ii) a wholesale business deriving more than 5% of its gross sales from the sale of hair care products. Notwithstanding the foregoing, Developer shall not 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 5% or less of that class of securities issued and outstanding.
Source: Item 23 — RECEIPT (FDD pages 58–229)
What This Means (2025 FDD)
According to the 2025 Floyds 99 Franchise Disclosure Document, during the term of the agreement, neither the franchisee (referred to as "Developer") nor any of their officers, directors, shareholders, principal managers, barbershop managers, equity owners, members, managers, or partners, nor any member of their immediate families, can have a direct or indirect controlling interest as a disclosed or beneficial owner in a Competitive Business. A Competitive Business is defined as any business operating or granting franchises or licenses to others to operate a retail hair care business deriving more than 5% of its gross sales from haircuts or hair care products, or a wholesale business deriving more than 5% of its gross sales from the sale of hair care products.
This restriction prevents a Floyds 99 franchisee or their immediate family from actively owning or controlling a competing hair care business while the franchise agreement is in effect. The term "controlling interest" suggests a level of ownership that allows influence over the business's operations or decisions. This measure aims to protect Floyds 99's market position and prevent franchisees from using the franchisor's confidential information and resources to benefit a competing business.
However, there is an exception: the franchisee or their family members are not prohibited from owning securities in a Competitive Business if the securities are listed on a stock exchange or traded on the over-the-counter market and represent 5% or less of that class of securities issued and outstanding. This exception allows for minor, passive investments in publicly traded companies that may be considered competitive.
This non-compete clause is a standard practice in franchising to protect the franchisor's brand and business model. Prospective Floyds 99 franchisees should carefully consider this restriction and ensure they do not have any conflicting business interests that could violate the agreement. It is important to understand the definition of "Competitive Business" and the implications of having a controlling interest in such a business during the franchise term.