How to Sell Franchises In New York

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The International Franchise Exposition ("IFE") is coming back to New York City again for this summer of 2014. In order to continue enabling franchisors that are not registered to sell franchises there, the State of New York has again renewed the limited exemption to its Franchise Sales Act (N.Y. Gen. Bus. L. § 680 et. seq.) (the "Act"). The three-day exemption allows franchisors that are not registered with the State to participate in the 2014 IFE under certain circumstances.

An eligible franchisor that files and complies with the exemption rules will be permitted to exhibit and offer for sale, but not to sell, franchises at the IFE. Before a company can actually sell a franchise covered under the Act, the franchisor would still have to register with the state as provided under New York law.

Why the distinction between making an "offer to sell" and "selling" a franchise? It's because ordinarily, an unregistered franchisor that exhibits at a trade show in a franchise registration state would potentially violate that state's registration law. The way most registration state laws are written makes it illegal to either offer to sell or to sell a franchise without first being registered there. Arguably, simply exhibiting at the show is making an "offer to sell" a franchise.

Franchise companies have long argued that these state franchise registration laws unnecessarily discourage commerce by preventing them from participating in franchise expos when they are not registered, even where those franchisors do not plan to make franchise sales without complying with applicable state law. 

Franchisors (and companies that are interested in franchising) contend that participating in trade shows can provide a valuable opportunity for them to "test the waters" to determine the market demand for their concepts. If franchisors (and companies that are interested in franchising) are allowed to participate in trade shows without having to first register in the host state, they would be able to gain valuable insight from comments and suggestions made by prospects, other franchisors, and even attending consultants.

From the franchisee's perspective, greater trade show participation by franchisors will increase the availability of information about a variety of concepts and give them the opportunity to obtain information, one-on-one, from representatives of those concepts - an opportunity that is unique to the franchise expo format. Franchisees contend that franchisors that participate in franchise expos are usually better-educated about franchising.  It follows that better-educated franchise companies make better franchisors, and will result in higher-quality Franchise Disclosure Documents and better franchise systems.

This exemption may prove critical even to franchisors that file to register in New York in advance of the IFE. During 2013 (at least based on my own experience in representing franchisors that applied to register in New York), New York was one of the slowest states to respond to franchise registration and renewal filings, often taking three or more months to register a franchise. If the same holds true in 2014, a franchisor that plans to exhibit at the IFE, but has not already obtained registration in NY by early May 2014, should consider filing for this exemption to ensure that it can do so without violating state law.

To take advantage of New York's exemption, a franchisor is required to complete and submit an application exemption form and supporting materials to the Office of the New York Attorney General. Follow the link: application form for U.S.-based franchisors / application form for international franchisors. Please note that exemptions are not automatic; the Attorney General's office will review applications and reserves the right to deny any request. For this reason, it's important for franchisors planning to take advantage of the exemption to file well in advance of this year's IFE.

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2 Comments

Is it better for a franchisor to simply register in New York as opposed to getting the exemption?

A franchisor planning to participate in the IFE in NYC should certainly register the franchise offering in NY. The only advantage of the trade show exemption is that the AG's office will complete its review on an expedited basis. Otherwise, as Matthew points out, the franchisor might be barred from exhibiting while its application for registration is pending.

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This page contains a single entry by Matthew Kreutzer published on March 23, 2014 6:54 PM.

Why No New Franchise Disclosure Legislation is Ever Needed was the previous entry in this blog.

In a Crisis, Your Trusted Advisors Aren't Any More is the next entry in this blog.

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