Is Gold Star required to obtain franchisee approval before selling the agreement to a third party?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
ood moral character and reputation, satisfactory credit ratings, acceptable business qualifications, satisfactory completion of training programs, and the ability to comply fully with the terms of the then-current franchise agreement;
- 13.4.4 The transferee will enter into a written assumption, in a form satisfactory to the COMPANY, assuming and agreeing to discharge all of
- FRANCHISEE's obligations under this Agreement prior to and after the date of assumption;
- 13.4.5 The transferee shall have paid the COMPANY its then-current transfer fee. The amount of the transfer fee shall be set by the COMPANY from time to time in the exercise of its absolute discretion. The transfer fee as of the date of this Agreement, but subject to change, is Three Thousand Five Hundred Dollars ($3,500.00).
- 13.4.6 The transferee shall have executed the COMPANY's then-current form of franchise agreement for a term equal to the remaining current term of this Agreement, save and except that there shall be no initial franchise fee payable, and the transferee shall execute such other agreements and documents as the COMPANY may reasonably require.
- 13.5 Exceptions to Transfer Restrictions. Notwithstanding the foregoing, FRANCHISEE (if FRANCHISEE is an individual) may Transfer all of its interest in the Restricted Assets to an entity formed solely for the convenience of ownership without the COMPANY's consent, upon FRANCHISEE's written notice to the COMPANY and compliance with the following requirements:
- 13.5.1 FRANCHISEE will be newly organized and its articles of incorporation or organization, bylaws, partnership agreement, or operating agreement will provide that its activities are confined exclusively to operating the Business;
- 13.5.2 Franchisee's name will not consist of or contain the words "Gold Star Chili", or any colorable variation thereof, or any other mark in which the COMPANY has or claims a proprietary interest; and
- 13.5.3 FRANCHISEE and its Principals will comply with all of the requirements set forth in Section 17 below.
- 13.6 No Transfer by Operation of Law. No person or entity shall succeed to any of the rights of FRANCHISEE under this Agreement by virtue of any voluntary or involuntary proceeding in bankruptcy, receivership, attachment, execution, assignment for the benefit of creditors or other legal process. Any such attempt to so transfer FRANCHISEE's interest in this Agreement shall be null and void.
- 13.7 Prohibition on Issuing Equity. If FRANCHISEE or any proposed transferee is a corporation, limited liability company or partnership, such entity shall not issue any additional stock, membership, partnership or other ownership interests or permit any transfer of any such interest, and each stockholder, member or partner thereof shall, in writing, agree not to issue, assign, transfer, pledge, sell or otherwise convey all or part of any capital stock, membership interest or partnership interest in FRANCHISEE or such transferee, without compliance with the rights of the COMPANY set forth under this Section 13. For the purpose of clarity, any such issuance or transfer will be considered a "Transfer" pursuant to
- this Section 13. All partnership agreements and operating agreements shall contain provisions setting forth the foregoing restrictions. All stock certificates shall have endorsed on them the legend set forth in Section 17.4, below.
- 13.8 Death or Disability of Person with Controlling Interest. Upon the death or permanent incapacity of any person with a direct or indirect controlling interest in this franchise or in FRANCHISEE, and upon the dissolution of a FRANCHISEE that is a partnership, limited liability company, or corporation, or the death or permanent incapacity of a FRANCHISEE that is a natural person, the executor, administrator, personal representative or trustee of such person or entity shall transfer his or its interest to a third party approved by the COMPANY
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
The 2025 Gold Star Franchise Disclosure Document does not specify that Gold Star needs to obtain franchisee approval before selling the agreement to a third party. However, the document does state that any attempt to transfer the franchisee's interest in the agreement without following the outlined procedures will be considered void.
Specifically, Section 13 of the agreement outlines the conditions under which a franchisee can transfer their interest. These conditions include paying a transfer fee, which as of the date of the agreement is $3,500 but is subject to change. The transferee must also execute Gold Star's current franchise agreement form for the remaining term of the original agreement, without paying an initial franchise fee.
There are exceptions to these transfer restrictions. For example, a franchisee who is an individual can transfer their assets to an entity formed solely for ownership convenience without Gold Star's consent, provided they give written notice and meet specific requirements. These requirements include ensuring the new entity's activities are limited to operating the business and that the entity's name does not include "Gold Star Chili" or any similar trademark. Additionally, if the franchisee is a corporation, LLC, or partnership, they cannot issue additional ownership interests or transfer existing ones without complying with Section 13.
In the event of death or permanent incapacity of a person with a controlling interest in the franchise, their interest must be transferred to a Gold Star-approved third party within six months. This transfer is subject to the same conditions as any other transfer. Overall, while Gold Star does not need franchisee approval to sell the agreement, franchisees face several restrictions if they want to transfer their franchise.