When Are You Exempt from the FTC Franchise Rule?

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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.
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1 Comment

Exemptions are very useful in certain narrowly construed situations.

Making sure that the prospective franchisee or development type fits the both the FTC Rules, the state where the prospective franchisee is domiciled and if different the state where the development will occur is paramount.

This is not a do-it-yourself test for exemption qualification you need to confirm the unique facts with an expert franchise attorney otherwise the risk of using the exemptions outweighs the benefit.

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About this Entry

This page contains a single entry by Warren Lewis published on April 21, 2013 9:03 PM.

Why State Legislature May Require Franchisors to Act in Good Faith was the previous entry in this blog.

Do You Have a Bozo Lawyer? is the next entry in this blog.

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