Does the Hyper Kidz franchise agreement consider a transfer of ownership interests, such as shares or partnership interests, as a 'transfer' requiring approval?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
- 16.2.2 As used in this Agreement, the term "transfer" shall mean and include the voluntary, involuntary, conditional, direct or indirect assignment, sale, gift or other transfer by you or any of your Principals of any interest in or grant of any security interest in (a) this Agreement; (b) the Franchise; (c) you; (d) the Hyper Kidz Business; or (e) some or all of the assets of the Hyper Kidz Business, other than inventory items in the ordinary course of business.
- 16.2.3 As used above, an assignment, sale or other transfer shall include the following events:
- (a) the transfer of ownership of shares, partnership interest, or other Ownership Interests;
- (b) merger or consolidation or issuance of additional securities representing Ownership Interests;
- (c) any sale of Ownership Interests carrying voting rights of you or any security convertible to voting Ownership Interests of you or any agreement granting the right to exercise or control the exercise of the voting rights of any holder of an Ownership Interest; or
- (d) transfer in a divorce, insolvency, corporate or partnership dissolution proceeding, or in the event of the death of you or one of your Principals, by will, declaration of or transfer in trust, or under the laws of intestate succession or otherwise by operation of law.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the franchise agreement explicitly considers the transfer of ownership interests like shares or partnership interests as a 'transfer' that requires the franchisor's prior written approval. Specifically, the term 'transfer' includes the voluntary, involuntary, direct, or indirect assignment, sale, gift, or other transfer of any interest in the ownership of the franchisee entity.
The FDD details that a transfer includes the transfer of ownership of shares, partnership interests, or other ownership interests. It also encompasses events like mergers, consolidations, or the issuance of additional securities representing ownership interests. Any sale of ownership interests carrying voting rights, or any agreement granting the right to exercise control over voting rights, also falls under the definition of a transfer.
This provision means that franchisees must seek and obtain approval from Hyper Kidz before making any changes to the ownership structure of their franchise business. This requirement allows Hyper Kidz to maintain control over who its franchisees are and ensures that new owners meet their standards for business experience, financial resources, and moral character. Failing to obtain prior written approval for such transfers constitutes a breach of the franchise agreement and can result in the loss of rights to the franchise.