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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Business Law
Satisfied Customers: 17886
Experience:  B.A.; M.B.A.; J.D.
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My friend came up with a restaurant concept in which I invested

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My friend came up with a restaurant concept in which I invested 10%. We opened the restaurant in Nov. 2011. One year later he started a 'parent company' and now he's open a second restaurant with the same name. The 'parent company is now selling licenses and franchise fees for future restaurants. My partner now tells me if I want to buy into the 'parent company' which now owns all the rights(brand name,intellectually property) it's going to cost me 25,000 per 1%. I originally put in 100K for the 10% of the first restaurant.

Is this legal? Can you form a 'Parent company' after the first opening? He's say's that I'm only entitled to 10% of the net income first restaurant and If I want to buy into the parent company I have reinvest, even thought he just form the parent company as an LLC with a 100 filing fee? For 10% he wants 250K....what are your thoughts? TIA
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My friend came up with a restaurant concept in which I invested 10%. We opened the restaurant in Nov. 2011. One year later he started a 'parent company' and now he's open a second restaurant with the same name. The 'parent company is now selling licenses and franchise fees for future restaurants. My partner now tells me if I want to buy into the 'parent company' which now owns all the rights(brand name,intellectually property) it's going to cost me 25,000 per 1%. I originally put in 100K for the 10% of the first restaurant.


Is this legal?


Response 1: Hello TIA. The answer is not really. Generally, you would form a parent company before a subsidiary. However, if a business opens and the owner decides to put the business and other similar businesses into one LLC, the owner can create an LLC and add the businesses to the LLC. However and more importantly, if the owner starts new restaurants with the same as the first one and sells licenses and franchises for the restaurant with the same name as the first, you are entitled to 10% of the fees and profits in other restaurants that he opens. Any new restaurant created would carry the same percentage ownership interest for your initial investment unless there is an agreement to the contrary. Whether you are a part of the parent company or not, you are entitled to your percentage ownership interest in the restaurants and licensing and franchise fees charged.


Can you form a 'Parent company' after the first opening?




Response 2: See my previous response.




He's say's that I'm only entitled to 10% of the net income first restaurant and If I want to buy into the parent company I have reinvest, even thought he just form the parent company as an LLC with a 100 filing fee? For 10% he wants 250K....what are your thoughts? TIA




Response 3: He cannot charge you to “join” the LLC. You do not have to join the LLC to get your agreed 10% ownership interest in the restaurants and not just the first one

e.
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Customer: replied 3 years ago.

Thanks for the information... I have one follow up question. My Partner, who started this 'parent company' told me he trademarked the restaurant's name, so he has every right to transferred the name,rights, intellectual property to the 'parent company' and if I want to invest in the licenses/franchise business (parent company) I have to reinvest. This is the reason for the additional 25K per share.... Is this right? or as an original investor do I have any rights? TIA

Thanks for the information... I have one follow up question. My Partner, who started this 'parent company' told me he trademarked the restaurant's name, so he has every right to transferred the name,rights, intellectual property to the 'parent company' and if I want to invest in the licenses/franchise business (parent company) I have to reinvest. This is the reason for the additional 25K per share.... Is this right? or as an original investor do I have any rights? TIA


Response
: He can "trademark" the name all he wants, as an original investor you are entitled to the agreed percentage share in ALL THE RESTAURANTS CREATED WITH THE SAME NAME. Otherwise, you can sue and let the Court decide.