Business

Additional Prohibitions In addition to the prohibitions concerning the making of financial performance representations, discussed above, the amended Rule prohibits seven specific acts or practices. Each of the seven is discussed immediately below. Prohibition Against Contradictory Information The amended Rule prohibits a franchise seller from making any statement that contradicts the information disclosed in the…

Federal Exemptions (15 United States Code § 77) Small Offerings – Regulation A Regulation A (17 Code of Federal Regulations § 230.251 to § 230.262) permits the offering of up to $5 million of securities in a year without complying with all registration and disclosure requirements. If the Regulation A exemption is available, a shorter…

Item 18: Public Figures Item 18 of the amended Rule requires the disclosure of certain information about a public figure’s involvement in the franchise system. This covers public figures who lend their name or image to the franchise, control or manage the franchisor, or invest in the franchisor. Who Qualifies as a “Public Figure”? A…

Item 22: Franchise Contracts Item 22 of the amended Rule requires franchisors to attach a copy of all proposed agreements relating to the franchise offering that the franchisor provides or for which the franchisor makes arrangements. These include not only the franchise agreement, but leases, options, financing agreements, and purchase agreements. These attachments are part…

Sample Item 16: Restrictions on What the Franchisee May Sell The following is an example franchise disclosure document for Amended Franchise Rule’s Item 16. For more information, see this explanation of the Amended Franchise Rule’s Item 16. ITEM 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL We require you to offer and sell only those…

A franchise is an agreement or contract between two or more persons by which the franchisor, for a fee, gives the franchisee the right to engage in the business of offering or distributing goods or services using the franchisor’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol. Both the franchisor and the…

Drafting the Document Standard franchise forms are available from the State of Minnesota or by fax from the Fax Forms library at (651) 296-2803 or by mail from the Secretary of State. While these forms are designed to meet minimum requirements of the law, they are not intended to address every possible situation. Consultation with an…

At What Point in The Sales Process Must a Franchisor Furnish The Disclosure Document? The amended Rule provides that franchisors must furnish prospective franchisees with a disclosure document at least 14 calendar days before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate in connection with…

Ways of Furnishing Disclosure Documents The amended Rule expressly permits franchisors to furnish disclosure documents by any method they wish, including electronically. While a disclosure document must still be “in writing,” that term is defined broadly as “any document or information in printed form or in any form capable of being preserved in tangible form…

Apportionment is a key feature of state corporate taxes Apportionment formulas are important features of state corporate income taxes. They determine how much of a business’s income is taxable and affect the incidence and competitiveness of the tax. Minnesota apportions corporate income using the Minnesota proportions of the corporation’s sales, payroll, and property factors to…

Item 15: Obligation to Participate in the Actual Operation of the Franchise Business Item 15 of the amended Rule requires franchisors to disclose whether franchisees are required to participate personally in the direct operation of the franchise. Among other things, the amended Rule’s Item 15 calls for disclosures stating: any obligation for the franchisee to…

Definition of Franchising Franchising is a method of marketing and distributing goods and services. Franchises are offered and sold for many types of businesses, including services, retail trade, finance, real estate, transportation, and communications. A franchise is broadly defined as a contract or agreement between two or more persons by which the franchisor (the seller),…

Item 14: Patents, Copyrights, and Proprietary Information Like Item 13, Item 14 of the amended Rule follows the UFOC Guidelines in requiring disclosure of information about intellectual property related to the franchise. Franchisors must disclose the types of intellectual property, their ownership rights or licenses in each, details about, and the duration of, their rights,…

Item 13: Trademarks Consistent with the UFOC Guidelines, Item 13 of the amended Rule requires franchisors to disclose whether each of its principal trademarks is registered with the United States Patent and Trademark Office (“PTO”), as well as application, renewal, and other related information. If not, Item 13 mandates the following prescribed statement: We do…

ITEM 9: FRANCHISEE’S OBLIGATIONS This table lists your principal obligations under the franchise and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this disclosure document. Obligation Section in agreement Disclosure document item a. Site selection and acquisition/lease Section 2A of franchise agreement…

Franchise Disclosure Document Belmont Mufflers, Inc. A Minnesota Corporation 111 First Street Jackson, Minnesota 55000 (111) 222-3333 franchiseofficer@belmont_mufflers4u.com www.belmont_mufflers4u.com Belmont Mufflers, Inc., repairs and installs motor vehicle exhaust systems. The total investment necessary to begin operation of a Belmont Mufflers franchise is $100,000. This includes $42,000 that must be paid to the franchisor or affiliate….

The “Insiders” Exemption The amended Rule adds a new exemption for franchise sales to the officers, directors, general partners, managers (collectively “officers”), and owners of a franchisor. The prerequisites to qualify for this exemption differ depending upon whether the individual franchise purchaser is an officer, director, general partner, or manager, on the one hand, or…

ITEM 17: THE FRANCHISE RELATIONSHIP This table lists certain important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this disclosure document. Provision Section in franchise or other agreement Summary a. Length of the franchise term Section 1 (also Section 1 of Lease) Term is equal to…

Item 10: Financing Like Item 10 of the UFOC Guidelines, Item 10 of the amended Rule requires franchisors to disclose all material terms and conditions of any financing arrangements. The required disclosures include: The rate of interest, plus finance charges, expressed on an annual basis; The number of payments; Penalties upon default; and Any consideration…

The “Required Payment” Element The last of the three definitional elements of a franchise covered by the amended Rule is that purchasers of the business arrangement must be required to pay to the franchisor (or to an affiliate), as a condition of obtaining a franchise or starting operations, a sum of at least $500 at-5…

Item 7: Estimated Initial Investment Item 7 of the amended Rule requires franchisors to set out in a prescribed tabular format a franchisee’s entire estimated initial investment – i.e., all the expenses required by the franchise agreement and all other costs necessary for a franchisee to commence business. These expenses include items that are often…

Item 12: Territory Item 12 of the amended Rule, like the corresponding item of the UFOC Guidelines, requires detailed disclosures concerning assigned territories and applicable sales restrictions. Two important topics that must be covered in Item 12, among others, are: the conditions, if any, under which a franchisor will approve the relocation of the franchisee’s…

Item 16: Restrictions on What the Franchisee May Sell Like the UFOC Guidelines, the amended Rule’s Item 16 calls for disclosure of any restrictions relating to the goods or services a franchisee sells, including: any restriction allowing only sales of franchisor-approved goods or services; any restriction requiring a franchisee to sell all goods or services…

Large Franchisee Exemption The amended Franchise Rule exempts franchise offers and sales to large entities – such as airports, hospitals, and universities – that have been in business for at least five years and have a net worth of at least $5 million. What Type of Business Experience Is Required? To qualify for the exemption,…

Oral Agreements The amended Rule exempts purely oral relationships that lack any written evidence of a material term of the franchise relationship or agreement, as a matter of policy, to avoid problems of proof in its enforcement. However, the exemption does not apply when there is any writing, even if unsigned, with respect to a…

Isolated Sales and Limited Offerings Sales by a nonissuer of securities to no more than ten purchasers in Minnesota during any period of twelve consecutive months are exempt from registration as are nonissuer transactions by or through a broker dealer where the security has been in the hands of the public for at least 90…

Sample General Media Financial Performance Representation Our Franchisees Earn $50,000 or More Per Year! Now, for a limited time in this area, Belmont Mufflers, Inc., is offering an opportunity for a self-motivated individual to join the ranks of independent entrepreneurs who have earned $50,000 a year.* Small investment needed. Seize the chance! ________________ * W…

Sample Item 15-1: Obligation to Participate in the Actual Operation of the Franchise Business ITEM 15: OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS.  If you are an individual, you must directly supervise the franchised business on its premises. If you are a corporation, a person who owns at least a 1/3…