Can a Potbelly Sandwich Works franchisee loan money to a Competitive Business?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
- 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 o
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works' 2025 Franchise Disclosure Document, the document does not explicitly state whether a franchisee can loan money to a Competitive Business. However, the FDD does state that franchisees, their owners, or their spouses are restricted from having certain interests or performing specific services for a Competitive Business.
Specifically, during the term of the franchise agreement, franchisees, their owners, and their spouses are prohibited from having a direct or indirect controlling interest in a Competitive Business. They are also restricted from having a non-controlling interest exceeding two percent equity ownership in a Competitive Business, unless the stock is publicly traded on a recognized U.S. stock exchange. Additionally, they cannot perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business.
Given these restrictions, a prospective franchisee should seek clarification from Potbelly Sandwich Works regarding whether providing a loan to a Competitive Business would be considered having a prohibited direct or indirect interest. This is crucial to ensure compliance with the franchise agreement and to avoid potential conflicts of interest or breaches of contract.