If a Stretch Zone franchisee assigns the Franchise Agreement to a Business Entity, what must all certificates representing equity interests bear?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
) any other matter upon which certification is requested by us or a prospective assignee or lender. We and any prospective purchaser or lender of ours may rely upon any estoppel certificate you give under this Subsection. Any failure or refusal to timely sign a truthful estoppel certificate under this Subsection is an Event of Default on your part.
Section 10.2 TRANSFER BY YOU
(a) Personal Rights. You agree not to transfer any interest in this Agreement, or a major portion of the Business Assets comprising the Franchise Business, or more than 50% of the equity interests of the Franchisee if a Business Entity without our prior written consent. We will not unreasonably withhold, delay or condition our consent to any proposed transfer or assignment by you that requires our consent. Our consent is not required for a transfer of an equity interest, if the
Franchisee is a Business Entity, to another original equity owners but such transfer does not release the transferring Franchise Owner from her/his obligations under any Guaranty that s/he previously signed.
- (b) Transfer to Your Business Entity. You may assign this Agreement to a Business Entity in which you own a majority of the issued and outstanding equity interests if:
- (i) You or a Regional Manager actively manages the Business Entity and continues to devote his or her best efforts and full and exclusive time to the day-to-day operation of your Franchise Business. You must advise us of the name of the Regional Manager, and the Regional Manager must meet our standards, including training.
Source: Item 8 — Receipts. Any sale made must be in compliance with § 683(8) of the Franchise Sale Act (N.Y. Gen. Bus. L. § 680 et seq.), which describes the time period a Franchise Disclosure Document (offering prospectus) must be provided to a prospective franchisee before a sale may be made. New York law requires a franchisor to provide the Franchise Disclosure Document at the earliest of the first personal meeting or ten (10) business days before the execution of the franchise or other agreement or the payment of any consideration that relates to the franchise relationship. (FDD pages 99–263)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, if a franchisee transfers the Franchise Agreement to a business entity, all certificates representing equity interests in that entity must bear a specific legend. This legend indicates that the membership interests represented by the certificate are subject to the terms of the Franchise Agreement between the company and Stretch Zone Franchising LLC, including restrictions on transfer. The legend also states that a copy of the Franchise Agreement is on file at the principal office of the company. The date of the Franchise Agreement must be included in the legend.
This requirement ensures that any potential future owners or stakeholders in the franchisee's business entity are aware of the obligations and restrictions imposed by the Franchise Agreement. It protects Stretch Zone's interests by ensuring that the franchise remains subject to the original terms, even if the ownership structure changes.
For a prospective Stretch Zone franchisee, this means that if they plan to operate their franchise through a business entity, they must ensure that all equity certificates issued by that entity include the specified legend. Failure to do so could potentially lead to disputes or non-compliance issues with Stretch Zone Franchising LLC. Franchisees should consult with legal counsel to ensure they properly implement this requirement when structuring their business.