SYMPOSIUM - International Franchise Association...legal symposium ifa’s 45th annual basics track...

IFA’s 45th Annual

LEGAL SYMPOSIUM

LEGAL SYMPOSIUM IFA’s 45th Annual

BASICS TRACK REGISTRATION: UNDERSTANDING THE STATE FRANCHISE

REGISTRATION NETWORK

Moderator: Cheryl Mullin Partner, Mullin Law, P.C.

Speakers: • Dale Cantone

– Deputy Securities Commissioner, Maryland Securities Division – Chair, Franchise and Business Opportunities Project Group, – North American Securities Administrators Association

• Alan R. Greenfield

– Shareholder, Greenberg Traurig, LLP • Janaki Parmar

– FisherZucker, LLC


REGULATORY OVERVIEW • Why is Registration Required?

– Preventing Fraud – Assisting Investors in Making Informed Decisions – Providing Investors with Recourse

• State Regulation of Franchising

– California, Florida, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin

– North American Securities Administrators Association and the Franchise

Registration and Disclosure Guidelines • State Regulation of Business Opportunities

– Connecticut, Florida, Georgia, Kentucky, Louisiana, Montana, Nebraska, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Texas, and Utah


Who Registers and When • Who: Franchisors & Subfranchisors • When: When There is Nexus with the State

– The Franchisee is Domiciled in the State – The Franchised Business will be Located in the State – The Offer or Sale Originates from the State – The Offer is Accepted in the State – In New York, the Franchisor Is Domiciled in the State

• Brokers and Sales Agents Selling in New York and Washington

• Business Opportunity Sellers


Types of Exemptions • Large/Seasoned Franchisor

– Net Worth of Between $1,000,000 and $15,000,000 – At Least 5 years of Experience with 25 Franchisees or More

• Sophisticated Purchase Exemptions • Isolated Sales Exemptions • Experienced Franchisee Exemptions for Employees • Franchisee to Franchisee Sales • Additional Sales to Existing Franchisees • Fractional Franchise • Out-of-State Exemptions


Prepping the FDD for Registration • Make Sure All Required Disclosure Have Been Made • Review Client Financials and Advise Regarding Likelihood of Impound

– US GAAP and GAAS (if an audit is required) – Positive Net Worth – Sufficient Working Capital

• State Specific Addenda?

State FDD Addendum Required?

Franchise Agreement Addendum/Rider Required?

California Yes No

Hawaii No No

Illinois Yes Yes

Indiana No No

Maryland Yes Yes

Michigan Yes No

Minnesota Yes Yes

New York Yes Yes

North Dakota Yes Yes

Rhode Island Yes Yes

South Dakota No No

Virginia No No

Washington Yes Yes

Wisconsin No No


Filing an Initial Registration Application • When Do You File?

– Before Offering Or Selling In the State • What Do You File?

– FDD with State-Specific Addenda, if Required – Consent to Service of Process – Uniform Franchise Registration Application – Filing Fee – State Specific Forms – Exemption Filings – Audit Consent Letter

• How Do You File? – Hard and Electronic Copies of Filed Materials – State Requiring Electronic Copies Only: Indiana, Rhode Island, and South

Dakota – Online Filing in Wisconsin

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How Long Will It Take? • General Timing • Automatic Effectiveness of Initial Filings

State Initial Application Automatically Effective (Subject to Receipt of Comment Letters)

California 15th Business Day After Filing Illinois 21st Day after the Date of Filing Maryland 30th Business Day After Filing Michigan Effective Upon Receipt By the State South Dakota 10 Days after Receipt Washington 15th Business Day After Filing Wisconsin Effective Upon Receipt by the State


Responding to Examiner Comments

• How Do I Respond? – Calls v. Formal Written Response – Emails and Faxes – Articulating A Disagreement

• When Must I Respond? State

Date Within Which Substantive Response Must Be Issued

California 15 Days After Issuance Hawaii 30 Days After Issuance Illinois Comment Letter Responses Due Within 30 Days After

Issuance; Applications Not Approved Within 90 Days of Filing are Deemed Abandoned

Maryland 6 Months After Issuance Minnesota 120 Days After Issuance Washington 15th Business Day After Filing

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Requests for Financial Assurances • Escrow • Deferral • Surety Bonds • Additional Capital

Infusions • Guaranty from Qualified

Entity


Changing FDD In Response to Examiner Comments

• Does an examiner change in state require amendments everywhere? – Clarifications to Existing Provisions – Errors in Disclosure – Correcting Typos

• Requests for Additional Financial Assurances – Consult with your Client


Approval

• Tell your Client • Send the Approved FDD • Provide Instructions on Disclosure • Remind the Client of Escrow/Deferral/Bonding

Requirements • Calendar the renewal deadline


Changes Triggering An Amendment • The information in Item 19 is no longer representative of system

performance • The termination, closing, or failure to renew between 1% and 5% of

the franchises in the state or 10% to 15% of the overall number of franchises

• Any change in the control, corporate name or state or incorporation, or reorganization of franchisor

• The repurchase by franchisor in excess of 5% to 10% of its existing franchises

• The commencement of any new product, service, or model line involving additional investment by the franchisee or discontinuation of the same

• Any changes in fee • Any significant changes in purchasing requirements • Any adverse financial development involving the franchisor or the

franchisor’s parent company, guarantor, or controlling entity


Filing Amendments • When? Promptly, Between 30 and 90 Days in Most States • Amendment Filings Not Required in Indiana or South Dakota • What Do You File?

– FDD with State-Specific Addenda, if Required – Uniform Franchise Registration Application – Filing Fee – Redline Denoting All Changes

• How Do You File? – Hard and Electronic Copies of Filed Materials – State Requiring Electronic Copies Only: Indiana, Rhode Island, and

South Dakota – Online Filing in Wisconsin


Amendment Effectiveness Effectiveness State

No Filing is Required Indiana and South Dakota

Automatic Florida, Michigan, Kentucky, Nebraska, Texas, Utah, and Wisconsin

Automatic Subject to Examiner Review

Illinois, Virginia (with Affidavit of Automatic Effectiveness)

Within 7 Days Hawaii

Within 13 Business Days Rhode Island

Must Await Approval to Offer or Sell California, Maryland, Minnesota, New York, Rhode Island, and Washington


Re-disclosure and Permissible Sales Activities On Amending

• Can clients talk to prospects? • Is Re-disclosure Required?


When Must You Renew?

• 90 Days After Fiscal Year End – Hawaii

• 110 Days After Fiscal Year End – California

• 120 Days After Fiscal Year End – Illinois, Minnesota, New York, and Rhode Island

• Within 12 Months of Anniversary Date of Prior Registration – Florida, Indiana, Maryland, Michigan, Virginia, Utah, Washington,

and Wisconsin • Earlier of the Anniversary Date of the Prior Registration or

120 days after the franchisor’s Fiscal Year End – North Dakota


How to File Renewals • What Do You File?

– Clean and Redlined Copies of FDD with State-Specific Addenda, if Required

– Consent to Service of Process – Uniform Franchise Registration Application – Filing Fee

• How Do You File? – Hard and Electronic Copies of Filed Materials – State Requiring Electronic Copies Only: Indiana, Rhode Island,

and South Dakota – Online Filing in Wisconsin


Incomplete Renewal Filings?


Renewal Effectiveness Effectiveness State

Automatic Florida, Kentucky, Michigan, Nebraska, Texas, Utah, and Wisconsin

Automatic Subject to Examiner Review

Illinois and Virginia (with Affidavit of Automatic Effectiveness)

Within 7 Days Hawaii

Within 13 Business Days Rhode Island

Must Await Approval to Offer or Sell California, Maryland, Minnesota, New York, Rhode Island, and Washington


Permissible Sales Activities While Renewals Are Pending


Your Client Commits A Violation- Now What?

• Offers While Unregistered

• Sales While Unregistered

• Inaccuracies in the FDD • Complaints from Franchisees or Competitors to the State

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THANK YOU!!! QUESTIONS?!?

SYMPOSIUM - International Franchise Association...legal symposium ifa’s 45th annual basics track...

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