Is a Potbelly Sandwich Works franchisee allowed to have a non-controlling interest in a Competitive Business?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
cribe or approve and delivering those agreements to us.
- 6.02 In-Term Covenants. You acknowledge that we have granted you development rights in the Development Area in consideration of, and reliance upon, your agreement to deal exclusively with us. You therefore agree that, during the Term and any successor franchise term, neither you, any of your Owners, nor any of your or your Owners' spouses will:
- (a) have any direct or indirect controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business, wherever located or operating;
- (b) have any direct or indirect non-controlling interest as an owner whether of record, beneficial, or otherwise – in a Competitive Business, wherever located or operating (except that less than a two percent (2%) equity ownership interest in a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange will not violate this clause);
- (c) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating;
- (d) divert or attempt to divert any actual or potential business or customer of any Potbelly Shop to a Competitive Business;
- (e) divert or indirectly loan any money or other thing of value to, or guarantee any other person's loan to, any Competitive Business or any owner, director, officer, manager, employee or agent of any Competitive Business, wherever located or operating; or
- (f) engage in any other activity that might injure the goodwill associated with the Marks and Branded System.
- 6.03 Procurement of Additional Covenants.
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, franchisees are generally restricted from holding a non-controlling interest in a Competitive Business during the term of their franchise agreement. A "Competitive Business" is defined as any fast-casual restaurant deriving more than 20% of its revenue from specific types of sandwiches or frozen confection items, or any business that franchises or licenses others to operate such a business. Specific examples of Competitive Businesses include Blimpie, Corner Bakery Café, Firehouse Subs, Jersey Mike's, Jimmy John's, McAlister's Deli, Panera Bread, Quizno's, Schlotzky's, Subway, Tropical Smoothie Café, and Which Wich.
However, there is an exception to this restriction. A Potbelly Sandwich Works franchisee may hold less than a two percent (2%) equity ownership interest in a Competitive Business if the stock or other forms of ownership interest are publicly traded on a recognized United States stock exchange. This exception allows franchisees to invest in publicly traded companies that may be considered Competitive Businesses without violating the terms of their franchise agreement, provided their ownership stake remains below the 2% threshold.
This clause ensures that franchisees remain dedicated to the Potbelly Sandwich Works brand and do not have conflicting interests in competing businesses. Prospective franchisees should be aware of these restrictions and ensure they comply with them to avoid violating their franchise agreement. It is important to note that these restrictions apply not only to the franchisee but also to their spouses and owners.