Wednesday, June 13, 2012

FTC Raises Monetary Thresholds for Three Exemptions to Franchise Disclosure Rule

This posting was written by John W. Arden.

The Federal Trade Commission is amending its franchise disclosure rule to raise the monetary thresholds used to determine whether a franchise sale is exempt from the rule, which requires presale disclosure information to prospective franchise purchasers.

The 2007 amendments to the franchise rule provide three exemptions based on a monetary threshold in 16 CFR Part 436 .8 (CCH Business Franchise Guide ¶6018).

These exemptions are for:

(1) Franchise sales in which the purchaser must make required initial payments of less than $540 (currently $500), §436.8(a) (1);

(2) Franchise sales in which the initial investment is at least $1,084,900 (currently, $1 million), excluding the cost of unimproved land and financing received from the franchisor or an affiliate, §436.8(a) (5) (i); and

(3) Franchise sales to large entities that have been in business for at least five years and have a net worth of at least $5,424,500 (currently $5 million), §436.8(a)(5)(ii).
The franchise rule requires the FTC to adjust the monetary thresholds every four years, based on the Consumer Price Index. The adjustments will take effect on July 1, 2012.

The Commission voted 5-0 to approve the Federal Register Notice on the adjustments. Further information on the franchise rule amendments appear here on the FTC website.

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