Is the Operator of a Nothing Bundt Cakes Bakery required to have an equity interest in the Bakery?
Nothing_Bundt_Cakes Franchise · 2025 FDDAnswer from 2025 FDD Document
(a) Approved Affiliates. To maintain your rights under this Rider, you (and/or Approved Affiliates) must, by the deadlines specified in the Schedule, sign franchise agreements and leases for, and then construct, develop, and have open and operating within the Development Area, the agreedupon minimum number of Nothing Bundt Cakes® Bakeries. If your owners establish a new legal entity to operate one or more of the Nothing Bundt Cakes® Bakeries to be developed pursuant to this Rider and that new legal entity's ownership is completely identical to your ownership, that legal entity automatically will be considered an "Approved Affiliate" without further action. However, if the new legal entity's ownership is not completely identical to your ownership, you first must seek our approval for that new entity to develop and operate the proposed Bakery as an Approved Affiliate. We may refuse any such request if you and/or your owners do not (a) own and control at least eighty percent (80%) of the new entity's ownership interests and (b) have the authority to exercise voting and management control of the Bakery proposed to be owned by the new entity.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 62–63)
What This Means (2025 FDD)
According to the 2025 Nothing Bundt Cakes FDD, if a franchisee's owners establish a new legal entity to operate one or more Nothing Bundt Cakes Bakeries under a Development Rights Rider, and the new entity's ownership isn't completely identical to the franchisee's ownership, the franchisee must seek approval from Nothing Bundt Cakes for the new entity to operate the bakery as an Approved Affiliate.
Nothing Bundt Cakes may refuse this request if the franchisee and/or their owners do not own and control at least 80% of the new entity's ownership interests and have the authority to exercise voting and management control of the Bakery proposed to be owned by the new entity. This indicates that while a franchisee can establish a separate legal entity to operate a bakery, Nothing Bundt Cakes requires the franchisee to maintain significant ownership and control.
This requirement ensures that the franchisee retains a vested interest and maintains control over the operations of the Nothing Bundt Cakes bakery, even if it's operated through a separate legal entity. This is a fairly common practice in franchising, as franchisors want to ensure that franchisees are committed to the business and adhere to the franchisor's standards and operating procedures. By requiring a minimum ownership stake and management control, Nothing Bundt Cakes aims to protect its brand and maintain consistency across all franchise locations.