Under what condition are the restrictions in Section 4 of the Southern Steer Franchise Agreement not applicable?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
If the Franchise Agreement required to be executed pursuant to this Section 6 (and the other applicable provisions of this Agreement) is executed by an approved Controlled Entity, then: (a) the Multi-Unit Developer (or the Multi-Unit Developer's Owners) will be required to maintain at least a 51% Ownership Interest in the Controlled Entity during the Term of this Agreement; and (b) the Multi-Unit Developer will not be relieved from complying with the terms, conditions and the Multi-Unit Developer's obligations set forth in this Agreement.
If the Multi-Unit Developer elects to have a Controlled Entity execute the Franchise Agreement for any Southern Steer Business being developed under this Agreement, then all terms, conditions and obligations under this Agreement relating to compliance with the Franchise Agreement for that Southern Steer Business will be the obligation of the Controlled Entity, and not the Multi-Unit Developer.
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, the restrictions outlined in Section 4 of the Southern Steer Franchise Agreement are not applicable if the Franchise Agreement is executed by an approved Controlled Entity. A Controlled Entity refers to a separate legal entity established by the Multi-Unit Developer to operate the Southern Steer franchise. However, this is contingent upon the Multi-Unit Developer maintaining at least 51% ownership in the Controlled Entity throughout the term of the agreement.
Even when a Controlled Entity executes the Franchise Agreement, the Multi-Unit Developer is not entirely relieved of their obligations. The Multi-Unit Developer must still ensure the Controlled Entity complies with all terms, conditions, and obligations outlined in the Franchise Agreement. Failure to maintain the required ownership percentage or ensure compliance by the Controlled Entity can result in a breach of the Multi-Unit Development Agreement.
This structure allows for flexibility in operating the Southern Steer franchise through a separate entity while ensuring the Multi-Unit Developer retains significant control and responsibility. Prospective franchisees should carefully consider the implications of using a Controlled Entity and ensure they can meet the ownership and compliance requirements.