Wednesday, August 26, 2009

Illinois Amends Franchise Disclosure Act

This posting was written by John W. Arden.

Legislation bringing the Illinois Franchise Disclosure Act of 1987 in line with the 2007 FTC Franchise Rule was signed by Governor Pat Quinn on August 24.

The measure requires that franchise disclosure statements be prepared in accordance with the FTC Franchise Rule (16 C.F.R. Part 436, CCH Business Franchise Guide ¶6010), provides new exemptions from the registration requirement, and makes registration deadlines consistent with the FTC Franchise Rule's renewal requirements.

Exemptions from Registration

Amendments exempt from the registration requirement (1) franchisors that have a net worth of at least $15 million or a net worth of at least $1 million and are at least 80 per cent owned by a corporation with a net work of $15 million; (2) sales to franchisees having been in business for at least five years and having a net worth of at least $5 million; and (3) sales to “insiders” of the franchisor.

Franchisors exempt from registration requirements still must provide prospective franchisees with disclosure documents.

Registration Deadlines, Disclosure Statement Amendments

Registrations of a franchise shall expire 120 days after the franchisor’s fiscal year end, and franchisors must file updated disclosure statements prior to expiration of a registration.

Disclosure statements will have to be amended within 30 days after the close of each quarter of a franchisor’s fiscal year, reflecting material changes to the disclosures.

Further amendments repeal the registration requirement for franchise brokers and impose fees for the filing of an initial large franchisor exemption ($500) and renewal of the exemption ($100).

The legislation (Public Act 096-0648) also amends the Illinois Business Brokers Act of 1995 and the Illinois Business Opportunity Sales Law of 1995. Amendments to these laws update references to the franchise disclosure requirements in the laws’ exemption provisions.

The amendments will take effect on October 1, 2009. Text of the amending law appears here on the Illinois General Assembly's website.

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