over the franchise sale. An important concept in franchise sales regulation is the “offer” of a franchise. Coverage under virtually all state franchise laws is triggered by sales activity constituting an “offer.” Most state franchise laws will apply to an offer made to or from, or accepted in, a state, even though the prospective franchisee is
IDI Project - Country report on franchising – U.S.A. 35 domiciled in another state and the business is to be operated in another state. State laws generally define the “offer” of a franchise to include “every attempt to offer or dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value.” This broad definition of “offer” will generally include: (1) Oral or written contact with a prospective franchisee. Administrative interpretations suggest that any communications concerning a specific franchise opportunity may constitute an “offer.” (2) Telephone communications to or from a registration/disclosure state. (3) Newspaper, magazine, radio or television advertising offering a franchise. Most states, however, exempt from the definition of offer the circulation of an advertisement in a publication which has two-thirds of its circulation outside of the state. (4) Promotional brochures and other franchise sales literature. In contrast, the “sale” of a franchise generally refers to the execution of a franchise agreement or other binding contract (such as a development agreement, option agreement or letter of intent), or the payment of consideration by the prospective franchisee for the purchase of franchise rights. These events are particularly important as they also relate to the timing of disclosure. Exemption from State Franchise Registration Requirements Most of the state franchise registration laws provide for a variety of exemptions from registration which may be available to qualifying franchisors. The nature and terms of such exemptions vary widely from state to state but are generally divisible into three categories: (1) the nature of the offeror; (2) the nature of the offeree; and (3) the nature of the offer or transaction.27Common exemptions which may be available in certain registration states include franchisor high net worth and/or experience, sales to existing franchisees, sales by franchisees, isolated sales, and franchisee high net worth and experience. 27Each of the franchise “registration” states also has “exemptions” as well. See supra, note 1 for citations, and the chart entitled “Summary of State Franchise Registration Exemptions.” Summary of State Franchise Registration ExemptionsState28Large orSeasonedFranchisorExperienced/SophisticatedFranchiseeFranchiseeSaleInstitutionalFranchiseeExistingFranchiseeOrder ByAdministratorSingle Saleor LimitedSaleNominalFranchiseFeeFractionalFranchiseExisting RetailEstablishmentCaliforniaXXX-XX-XX-Hawaii--XXXX----IllinoisXXXXX-X-XXXIndianaX-X-
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