FRANCHISE SALES AND DISCLOSURE LAW
COMPLIANCE ISSUESDAVID J. KAUFMANN
Kaufmann, Feiner, Yamin, Gildin & Robbins LLPNew York, New York
JOEL R. BUCKBERGBaker Donelson Bearman, Caldwell & Berkowitz, P.C.
Nashville, TennesseeAdministrator, IFA Compliance Training
AN OVERVIEW OF THE LAW OF FRANCHISINGTHEY DIDN’T SEE IT COMING: THE GENESIS OF FRANCHISE
REGULATION
AN OVERVIEW OF THE LAW OF FRANCHISING
INTRODUCING THE THREE BODIES OF FRANCHISE LAW:
• FEDERAL AND STATE REGISTRATION / DISCLOSURE STATUTES
• STATE ‘RELATIONSHIP’ LAWS• FEDERAL AND STATE BUSINESS
OPPORTUNITY LAWS
FEDERAL AND STATE FRANCHISE REGISTRATION/DISCLOSURE LAWS
• FTC FRANCHISE RULE (NO REGISTRATION REQUIRED – DISCLOSURE ONLY)
• 3 State Approaches:– Merit Review– Annual Notice Filing– Single Notice Filing
FEDERAL AND STATE FRANCHISE REGISTRATION/DISCLOSURE LAWS
• CALIFORNIA• HAWAII• ILLINOIS• INDIANA• MARYLAND• MICHIGAN• MINNESOTA• NEW YORK
• NORTH DAKOTA• OREGON• RHODE ISLAND• SOUTH DAKOTA• VIRGINIA• WASHINGTON• WISCONSIN
FEDERAL AND STATE FRANCHISE REGISTRATION/DISCLOSURE LAWS
Annual Notice Filings:
• Florida• Indiana• Michigan• Utah• Wisconsin
Single Notice Filing:
• Connecticut• Kentucky• Nebraska• Texas
STATE FRANCHISE RELATIONSHIP LAWS
• ARKANSAS • MINNESOTA• CALIFORNIA • MISSISSIPPI• CONNECTICUT • MISSOURI• DELAWARE • NEBRASKA• HAWAII • NEW JERSEY• ILLINOIS • SOUTH DAKOTA• INDIANA • VIRGINIA• IOWA • WASHINGTON• MICHIGAN • WISCONSIN
BUSINESS OPPORTUNITY LAWS
• ALABAMA• ALASKA• CALIFORNIA• CONNECTICUT• FLORIDA• GEORGIA• ILLINOIS• INDIANA• IOWA• KENTUCKY
• LOUISIANA • MAINE • MARYLAND • MICHIGAN • MINNESOTA • NEBRASKA• NEW
HAMPSHIRE • N. CAROLINA• OHIO
• OKLAHOMA • S. CAROLINA • S. DAKOTA • TEXAS • UTAH• VIRGINIA • WASHINGTON • FTC
FRANCHISE RULE
THE FTC FRANCHISE RULE
• WHAT IS COVERED / WHAT IS REQUIRED• LIMITED PREEMPTION OVER STATE
FRANCHISE LAWS
THE FTC FRANCHISE RULE
• THE DISCLOSURE “TRIGGER”• UPDATING DISCLOSURES• PROHIBITED PRACTICES /
PENALTIES FOR NONCOMPLIANCE
THE FTC FRANCHISE RULE
• NO PRIVATE RIGHT OF ACTION (BEWARE STATE ‘LITTLE FTC ACTS’ HOWEVER!)
• REVISIONS TO THE FTC FRANCHISE RULE ANNOUNCED JANUARY 22, 2007; PHASED IMPLEMENTATION 2007-2008
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
• SCOPE OF COVERAGE – WHAT IS A FRANCHISE? (BEWARE THE INADVERTANT FRANCHISOR SCENARIO)
STATE FRANCHISE REGISTRATION /
DISCLOSURE LAWS• DISCLOSURE TRIGGER – THE “OFFER”• JURISDICTIONAL COVERAGE – WHICH
STATE LAWS MAY APPLY?( WHERE OFFERED / WHERE ACCEPTED / FRANCHISEE’S RESIDENCE / WHERE UNIT WILL BE LOCATED )
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
THE UNIFORM FRANCHISE OFFERING CIRCULAR (“UFOC”) – WHAT IT IS;
HOW IT CAME TO BE; WHAT IT MUST CONTAIN.
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
• HOW DO YOU GET REGISTERED?
• A REVIEW OF THE REGISTRATION PROCESS
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
REGISTRATION OF SALESPERSONS AND FRANCHISE BROKERS (AND
THE DIFFERENCE BETWEEN THEM)
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
FILING REQUIREMENTS FOR FRANCHISE ADVERTISING
(AND JUST HOW IS THE WORD “ADVERTISING” DEFINED IN THE
FRANCHISE REGULATORY WORLD?)
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
EXEMPTIONS FROM STATE FRANCHISE REGISTRATION /
DISCLOSURE REQUIREMENTS
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
FRANCHISOR CAPITALIZATION REQUIREMENTS
STATE FRANCHISE REGISTRATION/DISCLOSURE
LAWS
UFOC AMENDMENTS / RENEWALS OF FRANCHISE REGISTRATIONS
STATE FRANCHISE REGISTRATION/DISCLOSURE LAWS
Penalties For Noncompliance• What is prohibited?• What powers do state franchise
administrators possess to investigate/order/litigate/prosecute?
• What civil and criminal penalties may be assessed – and against whom?
• What rights do franchisees have to go to court?
FEDERAL AND STATE FRANCHISE
REGISTRATION/DISCLOSURE LAWS
PERMITTED AND PROHIBITED NEGOTIATIONS WITH
PROSPECTIVE FRANCHISEES
FEDERAL AND STATE FRANCHISE
REGISTRATION/DISCLOSURE LAWS
EARNINGS CLAIMS / FINANCIAL PERFORMANCE REPRESENTATIONS
• What are they?• When can / can’t I make them?• How can I sell a franchise without them?• Beware the inadvertent earnings claim!
STATE FRANCHISE RELATIONSHIP LAWS
• TERMINATION / NONRENEWAL• TRANSFER AND ASSIGNMENT• ENCROACHMENT / GOOD FAITH• DISCLOSURES TO TRANSFEREES• PENALTIES FOR NONCOMPLIANCE
BUSINESS OPPORTUNITY LAWS:
AN OVERVIEW
THE FRANCHISE LAW COMPLIANCE PROGRAM
WHAT IT IS – AND WHY YOUR COMPANY NEEDS ONE!
WHY YOU SHOULD CARE ABOUT THE FEDERAL SENTENCING
GUIDELINES
FRANCHISE SALES AND DISCLOSURE LAW
COMPLIANCE ISSUES
•CONCLUSION•QUESTIONS AND ANSWERS