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.

Focus on Franchising

This posting was written by John W. Arden.

News and notes on franchising and distribution topics:

 The number of state franchise registrations filed by franchisors during the first quarter of 2009 is down by 16 to 22 percent as compared with the first quarter of 2008, according to state franchise regulators. (“Franchise Sales Pull Back During the Recession,” Wall Street Journal, April 28, 2008.) Among the 14 states that require franchisors to register an offering circular prior to selling franchises, three states surveyed by the Journal reported steep declines in the number of filings—Maryland (-16%); California (-20%); and New York (-22%). This does not mean that fewer franchises are being sold; it means only that fewer franchisors are filing for the right to sell franchises in states requiring registration. Bret Lowell, a partner at DLA Piper, indicated that franchisors usually instruct outside counsel to register them in every state—whether or not they have firm plans to sell in all of the states during the upcoming year. In the current economic environment, “they’re being more selective” in the states they choose to maintain registration.

 The International Franchise Association (IFA) will conduct its 42nd annual Legal Symposium on May 17-19, 2009, at the J.W. Marriott Hotel in Washington, D.C. Introduced by IFA President and CEO Matthew R. Shay, the symposium will feature three general sessions and 23 concurrent workshops on a variety of topics. In addition, the symposium will feature a five-part Basics Track to provide a solid foundation in franchise law and a session of roundtable discussions. For further information on the symposium, contact the IFA at (202) 628-8000 or visit the IFA website.

 The Federal Trade Commission will hold a public workshop on June 1 to hear public comment on the proposed changes to the FTC Business Opportunity Rule that were outlined in a revised notice of proposed rulemaking on March 26, 2008. Among the topics open for discussion is the proposed one-page Business Opportunities Disclosure Form that business opportunity sellers would be required to provide to prospective purchasers to help them make informed purchase decisions. The form would include information about earnings claims, litigation, cancellations and refund policies, and references. The workshop will be held from 9 a.m. to 5 p.m. in the FTC’s satellite building conference center at 601 New Jersey Avenue N.W., Washington, D.C. The FTC will accept written comments on topics to be covered in the workshop through June 15, 2009. Further information is available here at the FTC website.