Can a Kidokinetics franchisee encumber any right or interest in the agreement without Franchisor approval?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
approval.
- 15.3. Transfers by Franchisee. Franchisee shall not directly or indirectly sell, assign, transfer, give, devise, convey or encumber this Agreement or any right or interest herein or hereunder (a "Transfer"), the Kidokinetics Business or any assets thereof (except in the ordinary course of business) or suffer or permit any such assignment, transfer, or encumbrance to occur by operation of law unless it first obtains the written consent of Franchisor, except as provided in Section 15.6 of this Agreement. A transfer of any stock in the Franchisee if it is a corporation or a transfer of any ownership rights in Franchisee if it is a partnership, a limited liability company or limited partnership is a Transfer and is prohibited without prior written consent of Franchisor. If Franchisee has complied fully with this Agreement, Franchisor will not unreasonably withhold its consent of a Transfer that meets the following requirements:
- 15.3.1. The proposed transferee must be an individual of good moral character or the principals of the transferee must all be of good moral character and otherwise meet Franchisor's then-applicable standards for franchisees;
- 15.3.2. The transferee must have sufficient business experience, aptitude and financial resources to operate the Kidokinetics Business and to comply with this Agreement;
- 15.3.3.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, a franchisee cannot encumber the franchise agreement or any rights associated with it without prior written consent from Kidokinetics. Specifically, the franchisee is prohibited from directly or indirectly selling, assigning, transferring, giving, devising, conveying, or encumbering the agreement, the Kidokinetics business, or any related assets without obtaining written consent from Kidokinetics. This restriction does not apply to asset transfers in the ordinary course of business.
This requirement extends to transfers of stock if the franchisee is a corporation, or ownership rights if the franchisee is a partnership, limited liability company, or limited partnership. These types of transfers also require prior written consent from Kidokinetics. Kidokinetics retains the right to void any transfer made without the required approval.
Furthermore, a franchisee may not pledge, encumber, hypothecate, assign, or otherwise give a third party a security interest in the Franchise Agreement, Trade Names or Marks, other trade names, copyrighted materials, or the Kidokinetics Business, in any manner without Kidokinetics's consent, which must specifically state that the encumbrance is permissible and describe its specific nature. Any attempted encumbrance in violation of this section constitutes a breach of the Franchise Agreement and voids the security interest. This provision protects Kidokinetics's interests by ensuring control over who benefits from or has rights related to the franchise.
These stipulations are typical in franchising, as franchisors like Kidokinetics aim to maintain control over their brand and business operations. By requiring consent for transfers and encumbrances, Kidokinetics can vet potential new operators and ensure that financial arrangements do not compromise the integrity or operation of the franchise. Prospective franchisees should be aware of these restrictions, as they can impact the franchisee's ability to use the franchise as collateral or exit the business.