Does the Gold Star franchise agreement prevent a franchisee from participating in a similar business as a shareholder?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
d future partners, shareholders, or members acknowledge that the Products and the System are unique and distinctive and have been developed by the COMPANY at great effort, time and expense, and that FRANCHISEE will have regular and continuing access to valuable and confidential information, training and trade secrets regarding the Proprietary Products, the System and the Business and that FRANCHISEE would not have had such access except as a result of entering into this Agreement. In consideration of the foregoing, FRANCHISEE agrees that:
- 11.1.1 During the term of this Agreement or any renewal or extension thereof, FRANCHISEE shall not, in any capacity whatsoever, either directly or indirectly, for itself, himself or herself, or through, on behalf of or in conjunction with any other person, partnership, limited liability company, corporation or organization, own, operate, maintain, engage in, participate in (as director, officer, manager, employee, consultant, representative, agent or otherwise) or have any interest whatsoever in any "Similar Business". As used herein, "Similar Business" means the production, preparation or sale of any food items similar to the Products or any other business similar to the Restaurants, the Business or the System or that offers or grants franchises or licenses to others to operate such a business.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, the franchise agreement includes restrictive covenants that limit a franchisee's involvement in similar businesses. During the term of the franchise agreement, including any renewals or extensions, a franchisee is prohibited from owning, operating, or participating in any capacity in a "Similar Business," whether directly or indirectly. This restriction extends to involvement as a director, officer, manager, employee, consultant, representative, agent, or in any other role.
The definition of "Similar Business" is broad, encompassing the production, preparation, or sale of food items similar to Gold Star's products, as well as any business similar to the Gold Star restaurants, the business model, or the system. It also includes businesses that offer or grant franchises or licenses to others to operate such a business. This means that a franchisee cannot be a shareholder in a competing restaurant chain or a similar food service business during the term of their Gold Star franchise agreement.
Furthermore, even after the franchise agreement expires or is terminated, or if the franchisee transfers their interest in the restricted assets, the franchisee is restricted for a period of three years from participating in a Similar Business. This post-term restriction applies in any capacity, whether directly or indirectly, and includes involvement through other persons, partnerships, limited liability companies, or corporations. This comprehensive restriction aims to protect Gold Star's market position and proprietary information by preventing franchisees from using their knowledge gained from the franchise to benefit a competing business.