The FTC franchise rule may exempt you from following the basic franchise sales steps.

For example, you may be exempt if the franchise involves:

  • a required payment of less than $500 within the first 6 months

  • a fractional franchise within an established business

  • a leased department within an established retail business

  • a transaction covered by the Petroleum Marketing Practices Act

  • an initial investment of $1,000,000 or more, excluding the cost of unimproved land

  • a prospect with at least 5 years of business experience and a net worth of at least $5,000,000

  • a prospect related to the franchisor

  • a purely oral franchise.

Each exemption has specific requirements and conditions, so before relying on any exemption in the FTC franchise rule, check with the franchisor's lawyer or compliance manager.
 
State Laws.
 
Even if the FTC franchise rule exempts you from following the basic franchise sales steps, if a state law applies and does not exempt you from following the steps, you must follow the basic franchise sales steps because of the state law.
 
Even if the state law contains a similar exemption, the requirements of the state exemption may be narrower than the requirements of the FTC franchise rule exemption.
 
For example, the New York law's fractional franchise exemption is much narrower than the fractional franchise exemption in the FTC franchise rule.
 
Before you rely on an exemption in the FTC franchise rule, check with the franchisor's lawyer or compliance manager about whether any state law may negate the exemption.
 
If you would like to know if you can franchise your business, connect with me on LinkedIn and give me a call.

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