Franchise Registration States: Exemptions

California / Connecticut / Hawaii / Illinois / Indiana / Louisiana / Maryland / Michigan / Minnesota / New York / North Dakota / Rhode Island / Virginia / Washington / Wisconsin

California

There are a handful of exemptions to California’s franchise laws that can be found in the California code. These are complicated exceptions and should be discussed with a franchise lawyer before being used. In California, franchise registration requirements are granted to:

There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor complies with each of the following minimum net worth, experience, disclosure, and notice filing requirements:

(a) Net worth. The franchisor and, when necessary, a corporation owning at least 80 percent of the franchisor (parent) meet one of the following net worth requirements, according to financial statements for the fiscal year just ended. The franchisor and the parent, when necessary, may rely upon the immediately preceding fiscal year’s audited financial statement for 15 months from that fiscal year end date.

(1) The franchisor has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement.

(2) The franchisor has a net worth of not less than one million dollars ($1,000,000) and its parent has a net worth of five million dollars ($5,000,000), according to the audited financial statements of the franchisor and its parent, respectively.

(3) The franchisor has a net worth of one million dollars ($1,000,000), according to its unaudited financial statement, and the parent has a net worth on a consolidated basis of not less than five million dollars ($5,000,000), according to its audited financial statement, and the parent absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement should the franchisor become unable to perform its duties and obligations.

(b) Experience. The franchisor or a corporation owning at least 80 percent of the franchisor (parent) complies with one or more of the following conditions throughout the five-year period immediately preceding the offer and sale of the franchise, or complies with one of the following conditions during part of the period and one or more of the following conditions during the balance of the period:

(1) The franchisor has had at least 25 franchisees conducting business which is the subject of the franchise.

(2) The franchisor has conducted business which is the subject of the franchise.

(3) The parent has had at least 25 franchisees conducting business which is the subject of the franchise.

(4) The parent has conducted business which is the subject of the franchise.

(1) Except as provided in paragraph (2), the franchisor discloses in writing to each prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, the following information:

(A) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees.

(B) The franchisor’s principal business address and the name and address of its agent in the State of California authorized to receive service of process.

(D) The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be operated by the franchisees, (ii) has granted franchises for such business, and (iii) has granted franchises in other lines of business.

(E) A copy of the typical franchise contract or agreement proposed for use or in use in this state.

(F) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases.

(G) A statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.

(H) A statement of the conditions under which the franchise agreement may be terminated or renewal refused, or repurchased at the option of the franchisor.

(I) A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his or her designee services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business, together with a description thereof.

(J) A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the goods or services offered by him or her to his or her customers.

(K) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his or her agent or affiliate.

(L) A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee or subfranchisor in whole or in part.

(M) If any statement of estimated or projected franchisee earnings is used, a statement of such estimation or projection and the data upon which it is based.

(N) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory.

(O) A copy of the financial statement or statements required by subdivision (a).

(P) A copy of the unconditional guaranty, if applicable, required by paragraph (3) of subdivision (a).

(2) In the case of a material modification of an existing franchise, the franchisor discloses in writing to each franchisee information concerning the specific sections of the franchise agreement proposed to be modified and such additional information as may be required by rule or order of the commissioner. Any agreement by such franchisee to such material modifications shall not be binding upon the franchisee if the franchisee, within 14 days after the receipt of such writing identifying the material modification, notifies the franchisor in writing that the agreement to such modification is rescinded. A writing identifying the material modification is received when delivered to the franchisee. A written notice by the franchisee rescinding an agreement to a material modification is effective when delivered to the franchisor or when deposited in the mail, postage prepaid, and addressed to the franchisor in accordance with any notice provisions in the franchise agreement, or when delivered or mailed to the person designated in the franchise agreement for the receipt of notices on behalf of the franchisor.

(d) Notice filing. The franchisor has filed with the commissioner a notice of exemption and paid the fee required by subdivision (f) of Section 31500 prior to an offer or sale of a franchise in this state during any calendar year in which one or more franchises are sold, excluding any material modification.

(Amended by Stats. 2013, Ch. 334, Sec. 1. (SB 537) Effective January 1, 2014.)

31102.

The offer or sale of a franchise by a franchisee for his own account or the offer or sale of the entire area franchise owned by a subfranchisor for his own account, is exempted from the provisions of Section 31110 if the sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.

31103.

This division shall not be applicable to any transaction relating to a bank credit card plan. “Bank credit card plan” means a credit card plan in which the issuers of credit cards, as defined in subdivision (a) of Section 1747.02 of the Civil Code are only: banks regulated by or under the supervision of the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency of the United States, or the Commissioner of Financial Institutions of this state under Division 1 (commencing with Section 99) of the Financial Code; or, persons controlling these banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which the card issuers may be a party; or, persons controlled by these banks.

31104.

There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor:

(a) Is a petroleum corporation or distributor who is a wholesale distributor or marketer of petroleum products; doing business continuously for the past five years and who does not require an advance of funds in the nature of a fee or lease for such franchise agreements; not engaged in the production or the refining of petroleum; and

(b) Complies with the provisions of subdivisions (c) and (d) of Section 31101.

(1) A “wholesale distributor” or “marketer” means any entity which, for wholesale, purchases or receives through transfer, or otherwise obtains, by consignment or otherwise, refined petroleum products and resells or otherwise transfers such products, without substantially changing their form, to other purchasers.

(2) An “advance of funds” means (A) a fee or lease for a franchise agreement, and (B) does not mean rent for the possession or use, or both, of premises or property, the purchase of inventory for resale or supplies, utility deposits, and other consideration or expenditures for the formation or operation, or both, of a wholesale distributor or marketer entity.

31105.

Any offer, sale, or other transfer of a franchise, or any interest in a franchise, to a resident of another state or any territory or foreign country, shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, if all locations from which sales, leases or other transactions between the franchised business and its customers are made, or goods or services are distributed, are physically located outside this state.

31106.

There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer, sale, or other transfer of a franchise or any interest in a franchise, provided that the offer, sale or transfer meets the requirements in subdivisions (a) and (b):

(a) Any of the following conditions apply:

(1) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:

(A) The owner or owners have had, within the seven years before the date of the sale or other transaction, at least 24 months’ experience being responsible for the financial and operational aspects of a business offering products or services substantially similar to those offered by the franchised business.

(B) The owner or owners are not controlled by the franchisor.

(2) One or more of the owners of the prospective franchisee owning at least a 50 percent interest in the prospective franchisee meet both of the following:

(A) The owner or owners are, or have been within 60 days prior to the sale or other transaction, an officer, director, managing agent, or an owner of at least a 25 percent interest in the franchisor for at least 24 months.

(B) The owner or owners are not controlled by the franchisor.

(3) The offer, sale, or other transfer is of an additional franchise to an existing franchisee of the franchisor, or to an entity, one or more of the officers, directors, managing agents or owners of at least a 25 percent interest of which is an existing franchisee of the franchisor; provided that, in either case, for 24 months or more the franchisee, or the qualifying person, has been engaged in a business offering products or services substantially similar to those to be offered by the franchise being sold, or otherwise transferred.

(b) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 no later than 15 calendar days after the sale of a franchise in this state pursuant to this section.

31107.

There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part, any offer (but not the sale) by a franchisor of a franchise while an application for renewal or amendment is pending if the prospective franchisee receives all of the following:

(a) The franchise disclosure document and its exhibits as filed with the commissioner with the application for renewal or amendment.

(b) A written statement from the franchisor that (1) the filing has been made but is not effective, (2) the information in the franchise disclosure document and exhibits has not been reviewed by the commissioner, and (3) the franchisor will deliver to the prospective franchisee an effective franchise disclosure document and exhibits at least 14 days prior to execution by the prospective franchisee of a binding agreement or payment of any consideration to the franchisor, or any person affiliated with the franchisor, whichever occurs first, showing all material changes from the franchise disclosure document and exhibits received by the prospective franchisee under subdivision (a) of this section.

31108.

There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110), any offer or sale of a franchise if the franchise involves the adding of a new product or service line to the existing business of a prospective franchisee, provided all of the following requirements are met:

(a) For at least the last 24 months prior to the date of sale of the franchise, the prospective franchisee, or if the prospective franchisee is not a natural person, an existing officer, director, or managing agent of the prospective franchisee who has held that position with the prospective franchisee for at least the last 24 months, has been engaged in a business offering products or services substantially similar or related to those to be offered by the franchised business.

(b) The new product or service is substantially similar or related to the product or service being offered by the prospective franchisee’s existing business.

(c) The franchised business is to be operated from the same business location as the prospective franchisee’s existing business.

(d) The parties anticipated, in good faith, at the time the agreement establishing the franchise relationship was reached, that sales resulting from the franchised business will not represent more than 20 percent of the total sales in dollar volume of the franchisee on an annual basis.

(e) The prospective franchisee is not controlled by the franchisor.

(f) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to an offer or sale of such a franchise in this state during any calendar year in which one or more of those franchises are sold.

31109.

Any offer or sale of a franchise that meets all of the following requirements shall be exempt from Chapter 2 (commencing with Section 31110):

(a) Each and every purchaser of the franchise is one of the following:

(1) Any partner, executive officer, or director of the franchisor, or any executive officer of its corporate general partner if the franchisor is a partnership, or any manager if the franchisor is a limited liability company.

(2) Any entity with total assets exceeding five million dollars ($5,000,000) according to its most recent financial statements and not specifically formed for the purpose of acquiring the franchise offered. For purposes of this section, “entity” shall mean an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, limited liability company, or partnership. The financial statements referred to in this paragraph shall meet both of the following requirements:

(A) Be as of date not more than 90 days prior to the earlier of either the date on which the first prospective purchaser signs any binding franchise or other agreement with the franchisor in connection with the award of the franchise, or the date on which the franchisor receives any consideration from the first prospective purchaser in connection with the award of the franchise.

(B) Be prepared in accordance with either of the following:

(i) Generally accepted accounting principles and, if the entity has consolidated subsidiaries, on a consolidated basis.

(ii) The rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements.

(3) Any natural person whose net worth, or joint net worth with that person’s spouse, exceeds one million dollars ($1,000,000) at the time of his or her purchase of the franchise, excluding the value of that person’s personal residence, any and all retirement or pension plan accounts or benefits, home furnishings, and automobiles.

(4) Any natural person whose gross income exceeds three hundred thousand dollars ($300,000) per year in each of the two most recent years, or whose joint gross income with that person’s spouse exceeds five hundred thousand dollars ($500,000) per year in each of those years, and who reasonably expects to reach the same income level in the current year.

(5) Any entity, in which all of the equity owners are persons or entities described in either paragraph (1), (2), (3), or (4).

(b) Each and every purchaser of the franchise has knowledge and experience in financial and business matters, either alone or with professional advisers of the purchaser who are unaffiliated with, and not directly or indirectly compensated by, the franchisor or an affiliate or selling agent of the franchisor, such that the franchisor reasonably believes, based on reasonable inquiry before the sale, that each and every purchaser has the capacity to evaluate the merits and risks of, and protect their own interests in, the franchise investment.

(c) Each and every purchaser of the franchise purchases the franchise for the purchaser’s own account, or a trust account if the purchaser is a trustee, for the purpose of conducting the business as a franchise and not with a view to, or for a sale in connection with, any resale or distribution of the franchise or any interest in the franchise.

(d) The immediate cash payment required from a purchaser of the franchise who is a natural person, upon the purchase of the franchise, shall not exceed 10 percent of that person’s net worth or joint net worth with that person’s spouse, exclusive of that person’s personal residence, any and all retirement or pension accounts or benefits, home furnishings and automobiles.

(e) The franchisor files with the commissioner a notice of exemption and pays the fee prescribed in subdivision (f) of Section 31500 prior to any offer or sale of a franchise in this state for which the exemption is claimed during any calendar year in which one or more franchises are sold, excluding any material modification.

(f) No franchisor or any of its officers, directors, employees, or agents shall form, organize, engage, or assist any person to purchase a franchise for resale or distribution to avoid the registration requirements of Chapter 2 (commencing with Section 31110).

31109.1.

(a) There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) the offer and sale of a franchise registered under Section 31111, 31121, or 31123 on terms different from the terms of the offer registered thereunder if all of the following requirements are met:

(1) The initial offer is the offer registered under Section 31111, 31121, or 31123.

(2) The prospective franchisee receives all of the following in a separate written appendix to the franchise disclosure document:

(A) A summary description of each material negotiated term that was negotiated by the franchisor for a California franchise during the 12-month period ending in the calendar month immediately preceding the month in which the negotiated offer or sale is made under this section.

(B) A statement indicating that copies of the negotiated terms are available upon written request.

(C) The name, telephone number, and address of the representative of the franchisor to whom requests for a copy of the negotiated terms may be obtained.

(3) The franchisor certifies or declares in an appendix to its application for renewal that it has complied with all of the requirements of this section, in the event this exemption is claimed.

(4) The negotiated terms, on the whole, confer additional benefits on the franchisee.

(b) The franchisor shall provide a copy of the negotiated terms described in subdivision (a) to the prospective franchisee within five business days following the request of the franchisee.

(c) The franchisor shall maintain copies of all material negotiated terms for which this exemption is claimed for a period of five years from the effective date of the first agreement containing the relevant negotiated term. Upon the request of the commissioner, the franchisor shall make the copies available to the commissioner for review. For purposes of this section, the commissioner may prescribe by rule or order the format and content of the summary description of the negotiated terms required by subparagraph (A) of paragraph (2) of subdivision (a).

(d) For purposes of this section, “material” means that a reasonable franchisee would view the terms as important in negotiating the franchise.

To learn more about the franchising requirements for California, please visit this website.

Connecticut

Connecticut is a registration state, meaning it requires business opportunities to be registered with the Connecticut Department of Banking. 236 C. 602. § 36b-62. However, a franchise whose primary trademark is registered with the USPTO may file an exclusion notice to claim an exemption from the requirement to register the FDD. 236 C. 602. § 36b-65.

To learn more about the franchising requirements for Connecticut, please visit this website.

Hawaii

There are a handful of exemptions to Hawaii’s franchise laws that can be found in 482E-4 of the Hawaii code. These are complicated exceptions and should be discussed with a franchise lawyer before being used. However, under §482E-4, exemptions from Hawaii’sfranchise registration requirements are granted to:

(1) Any transaction by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator.

(2) Any offer or sale to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit sharing trust, or other financial institution or institutional buyer or to a broker dealer where the purchaser is acting for itself or in some fiduciary capacity.

(3) Any motor vehicle franchise subject to chapter 437.

(4) The offer or sale to a franchisee or prospective franchisee where the franchisee or prospective franchisee is not domiciled in this State and where the franchise business will not be operated in this State.

(5) The extension or renewal of an existing franchise or the exchange or substitution of a modified or amended franchise agreement or the transfer of the location of a franchise where there is no interruption in the operation of the franchise business of the franchisee, and no material change in the franchise relationship.

(6) The offer or sale of an additional franchise to an existing franchisee of the same franchisor.

(7) The offer or sale of a franchise by a franchisee for the franchisee’s own account, or the issuance of a new franchise agreement pursuant to a sale by a franchisee for the franchisee’s own account, if the sale is an isolated sale and not part of a plan of distribution of franchises.

To learn more about the franchising requirements for Hawaii, please visit this website.

Illinois

Illinois offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(1) The franchisor has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than $15,000,000; or the franchisor has a net worth, according to its most recent unaudited financial statement, of not less than $1,000,000 and is at least 80% owned by a corporation which has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than $15,000,000;

(2) The franchisee (or its parent or any affiliates) is an entity that has been in business for at least 5 years and has a net worth of at least $5,000,000; or

(3) One or more purchasers of at least 50% ownership interest in the franchise within 60 days of the sale, has been, for at least 2 years, an officer, director, general partner, individual with management responsibility for the offer and sale of the franchisor’s franchises or the administrator of the franchised network; or within 60 days of the sale, has been, for at least 2 years, an owner of at least a 25% interest in the franchisor.

To learn more about the franchising requirements for Illinois, please visit this website.

Indiana

Indiana offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(1) Has a net worth:

(A) on a consolidated basis according to current financial statements certified by independent certified public accountants, of not less than five million dollars ($5,000,000); or

(B) according to current financial statements certified by independent certified public accountants of not less than one million dollars ($1,000,000) and is at least eighty percent (80%) owned by a corporation which has a net worth on a consolidated basis, according to current financial statements certified by independent certified public accountants, of not less than five million dollars ($5,000,000);

(2) Has:

(A) Had at least twenty-five (25) franchisees conducting business at all times during the five (5) year period immediately preceding the offer or sale; or

(B) Conducted the business which is the subject of the franchise continuously for not less than five (5) years preceding the offer or sale; or if any corporation which owns at least eighty percent (80%) of the franchisor has had at least twenty-five (25) franchisees conducting business at all times during the five (5) year period immediately preceding the offer or sale, or such corporation has conducted the business which is the subject of the franchise continuously for not less than five (5) years preceding the offer or sale; and

(3) Discloses in writing to each prospective franchisee, at least ten (10) days prior to the execution by the prospective franchisee of a binding franchise or other agreement, or at least ten (10) days prior to the receipt of any consideration, whichever first occurs, the following information:

(A) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any affiliate that will engage in business transactions with franchisees.

(B) The franchisor’s principal business address and the name and address of its agent in Indiana authorized to receive service of process.

(D) The business experience of the franchisor, including the length of time the franchisor:

(i) Has conducted a business of the type to be operated by the franchisee;

(ii) Has granted franchises for that business; and

(iii) Has granted franchises in other lines of business.

(E) A copy of the franchise contract proposed for use or in use in Indiana.

(G) A statement describing any payments other than franchise fees that the franchisee is required to pay to the franchisor or affiliated persons, including royalties or payments which the franchisor or affiliated persons collect in whole or in part on behalf of a third party or parties.

(H) A statement of the conditions under which the franchise may be terminated, renewal refused, or repurchased.

(I) A statement as to whether the franchisee is required to purchase from the franchisor or affiliates or their designee services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchised business, together with a description thereof.

(J) A statement as to whether the franchisee is limited in the goods or services offered by the franchisee to the franchisee’s customers.

(K) A statement of the terms and conditions of any financing agreements.

(L) A statement of any past or present practice or of any intent of the franchisor to transfer to a third party any note, contract, or other obligation of the franchisee in whole or in part.

(M) If any financial statement concerning estimated profits or earnings is used, the data upon which the estimate is based.

(N) A statement as to whether the franchisee will receive an exclusive area or territory.

IC 23-2-2.5-4 Exempt franchisees

Sec. 4. The offer of sale of a franchise by a franchisee who is not an affiliate of the franchisor for his own account is exempt from section 9 if the offer or sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor if a franchisor is entitled to approve or disapprove a different franchisee.

To learn more about the franchising requirements for Indiana, please visit this website.

Louisiana

Louisiana requires some franchisors to register their FDD with the state, but not all. If an individual’s trademark is registered with the USPTO, then they do not need to worry about Louisiana’s Business Opportunity Laws. However, because of the Federal Franchise Rule, potential franchisors must provide their Federal Disclosure Document (FDD) to the prospective franchisee at least 14 days prior to signing the franchise agreement.

Maryland

Maryland offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greaterdetail with a franchise attorney. The exemptions are listed below:

(b) The registration requirement of this section does not apply to:

(1) A transaction by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian, or conservator;

(2) An offer to sell or sale of a franchise that is substantially similar to a franchise already owned by the offeree or buyer; and

(3) Any other transaction that the Commissioner exempts by regulation because:

(i) The transaction is not within the purpose of this subtitle; and

(ii) The registration of the transaction is not necessary or appropriate in the public interest or for the protection of investors.

(c) (1) The registration requirement of this section does not apply to the offer to sell or sale of a franchise by a franchisee for the franchisee’s own account, or the offer to sell or sale of the entire area franchise owned by a subfranchisor for the subfranchisor’s own account.

(2) A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.

(d) (1) The Commissioner may require by regulation that a franchisor or subfranchisor who claims under subsection (b)(3) of this section to be exempt from the registration requirements of this section:

(i) File with the Commissioner a notice of claim of exemption in the form that the Commissioner requires; and

(ii) Pay a fee of $250.

(2) The franchisor or subfranchisor shall sign and verify the notice of claim of exemption.

To learn more about the franchising requirements for Maryland, please visit this website.

Michigan

Michigan offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(1) Except as provided in subsection (2), the offer and sale of a franchise is exempt from sections 7a and 8 if any of the following circumstances apply:

(a) The transaction is by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator.

(b) The offer or sale is to a bank, savings institution, trust company, insurance company, investment company, or other financial institution, association, or institutional buyer or to a broker-dealer where the purchaser is acting for itself or in some fiduciary capacity.

(c) The prospective franchisee is required to pay, directly or indirectly, a franchisee fee which does not exceed $500.00.

(d) The offer or sale is to a franchisee or prospective franchisee where the franchisee or prospective franchisee is not domiciled in this state and where the franchise business will not be operated in this state.

(e) There is an extension or renewal of an existing franchise or the exchange or substitution of a modified or amended franchise agreement where there is no interruption in the operation of the franchise business of the franchisee, and no material change in the franchise relationship.

(f) The offer or sale of a franchise by a franchisee for the franchisee’s own account, if all of the following conditions are met:

(i) The sale is an isolated sale, and not part of a plan of distribution of franchises.

(ii) The franchisee provides to the prospective purchaser full access to the books and records related to the franchise in actual or constructive possession of the franchisee.

(g) The offer or sale of a franchise to an existing franchisee if all of the following conditions are met:

(i) The existing franchisee is the person or persons who has actively operated the franchise for the last 18 months.

(ii) The franchisee purchases for investment and not for the purpose of resale.

(h) The transaction complies with all of the following:

(i) The prospective franchisee is presently engaged in an established business of which the franchise will become a component.

(ii) An individual directly responsible for the operation of the franchise, or a person involved in the management of the prospective franchise, including but not limited to a director, executive officer, or partner has been directly or indirectly engaged in the type of business represented by the franchise relationship for at least 2 years.

(iii) The parties have reasonable grounds to believe, at the time the sale is consummated, that the franchisee’s gross sales in dollar volume from the franchise will not represent more than 20% of the franchisee’s gross sales in dollar volume from all of the franchisee’s combined business operations.

(2) If the franchisor has a disclosure statement in compliance with the laws of any state or rule of the federal trade commission, the franchisor shall comply with section 8.

To learn more about the franchising requirements for Michigan, please visit this website.

Minnesota

Minnesota offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(a) The offer or sale of a franchise owned by that franchisee, or the offer or sale of the entire area franchise owned by the subfranchisor making the offer or sale if the sale is not effected by or through a franchisor; provided, however, that no person shall make more than one sale during any period of 12 consecutive months of a franchise or area franchise granted by a single franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee;

(b) Any transaction by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian or conservator;

(c) Any offer or sale to a banking organization, financial organization or life insurance corporation within the meanings given these terms by section 345.31;

(d) Securities currently registered in this state pursuant to chapter 80A;

(e) The offer or sale of a franchise, not including an area franchise, provided that:

(1) The franchisor shall make no more than one sale of a franchise pursuant to this exemption during any period of 12 consecutive months;

(2) The franchisor has not advertised the franchise for sale to the general public in newspapers or other publications of general circulation or otherwise by radio, television, electronic means or similar communications media, or through a program of general solicitation by means of mail or telephone;

(3) The franchisor deposits all franchisee fees within two days of receipt in an escrow account until all obligations of the franchisor to the franchisee which are, pursuant to the terms of the franchise agreement, to be performed prior to the opening of the franchise, have been performed. The franchisor shall provide the franchisee with a purchase receipt for the franchise fees paid, a copy of the escrow agreement and the name, address and telephone number of the escrow agent. The escrow agent shall be a bank located in Minnesota. Upon a showing of good cause the commissioner may waive the escrow of franchise fees; and

(4) The franchisor has provided to the commissioner, no later than ten business days prior to the sale, a written notice of its intention to offer or sell a franchise pursuant to this exemption;

(f) The offer or sale of a fractional franchise;

(g) Any transaction which the commissioner by rule or order exempts as not being within the purposes of this chapter and the registration of which the commissioner finds is not necessary or appropriate in the public interest or for the protection of investors; and

(h) The offer or sale of a franchise to a resident of a foreign state, territory, or country who is neither domiciled in this state nor actually present in this state, if the franchise business is not to be operated wholly or partly in this state, and if the sale of this franchise is not in violation of any law of the foreign state, territory, or county concerned.

To learn more about the franchising requirements for Minnesota, please visit this website.

New York

New York offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

The department of law is hereby authorized and empowered to exempt by rule or regulation any person, franchise, or transaction from any provision of section six hundred eighty-three of this article or from any rule or regulation thereunder if the department finds that such action is not inconsistent with the public interest or the protection of prospective franchisees.
The department of law may, upon application and within its
discretion, exempt from the registration requirements of section six
hundred eighty-three of this article the offer and sale of a franchise
if:
1. The franchisor has a net worth on a consolidated basis, according to its most recently audited financial statement, of not less than five million dollars; or the franchisor has a net worth, according to its most recently audited financial statement, of not less than one million dollars and is at least eighty percent owned by a corporation which has a net worth on a consolidated basis, according to its most recently audited financial statement, of not less than five million dollars; and
2. The franchisor files with the department of law an application for an exemption, on forms and in the manner prescribed by the department, and a consent to service of process on the form required by the department; and
3. The franchisor discloses in writing to each prospective franchisee, at least seven days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least seven days prior to the receipt of any consideration, whichever occurs first, the following information:
  1. The name of the franchisor, the name under which the franchisor is
    doing or intends to do business, and the name of any parent or
    affiliated company that will engage in business transaction with the
    franchisee.
  2. The franchisor’s principal business address and the name and address of its agent in this state authorized to receive process.
  3. The business form of the franchisor, whether corporate, partnership, or otherwise.
  4. Such information concerning the identity and business experience
    of persons affiliated with the franchisor as the department may by rule prescribe.
  5. The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be
    operated by franchisees, (ii) has granted franchises for such business,
    and (iii) has granted franchises in other lines of business.
  6. A copy of the typical franchise contract or agreement proposed for
    use and in use in this state, including all amendments, deletions,
    variations, and supplements thereto.
  7. A statement of the franchise fee charged, the proposed application
    of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not uniform and the same in all cases.
  8. A statement describing any payments or fees other than franchise
    fees that the franchisee is required to pay to the franchisor, including
    royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.
  9. A statement of the conditions under which the franchise agreement
    may be terminated or renewal refused, or repurchased at the option of the franchisor.
  10. A statement as to whether, by the terms of the agreement or by
    other device or practice, the franchisee is required to purchase from
    the franchisor or his designee services, supplies, products, fixtures or
    other goods relating to the establishment or operation of the franchise
    business, together with a description and the terms and conditions
    thereof.
  11. A statement as to whether, by the terms of the franchise
    agreement or by other device or practice, the franchisee is limited in
    the goods or services offered by him to his customers.
  12. A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or
    his agent or affiliate.
  13. A statement of any past or present practice or of any intent of
    the franchisor to sell, assign, or discount to a third party any note,
    contract, or other obligation of the franchisee in whole or in part.
  14. If any statement of estimated or projected franchisee earnings or
    income is used, a statement of such estimate or projection and the data, methods and computations upon which such estimate or projection is based.
  15. A statement as to whether franchisees receive an exclusive area
    or territory.
  16. Other information related to the offer and sale of the franchise
    as the department of law may reasonably require.
4. Applications for exemptions shall be signed and verified by the franchisor in the same manner provided in the civil practice law and rules for the verification of pleadings, and shall be filed with the department of law at its office in the city of New York.
There shall be exempted from the registration provisions of section
six hundred eighty-three of this article the offer and sale of a
franchise if:
1. (i) The franchisor has a net worth on a consolidated basis,
  according to its most recent audited financial statement, of not less
  than fifteen million dollars; or the franchisor has a net worth,
  according to its most recent audited financial statement, of not less
  than three million dollars and is at least eighty percent owned by a
  corporation which has a net worth on a consolidated basis, according to
  its most recent audited financial statement, of not less than fifteen
  million dollars; and
  (ii) The franchisor discloses in writing to each prospective
  franchisee, at least seven days prior to the execution by the
  prospective franchisee of any binding franchise or other agreement, or
  at least seven days prior to the receipt of any consideration, whichever
  occurs first, such information as is required to be disclosed under
  subparagraph two of paragraph (c) of subdivision two of this section.
2. The offer or sale is to a bank, savings institution, trust
  company, insurance company, investment company, or other financial
  institution, association, or institutional buyer, or to a broker-dealer,
  where the purchaser is acting for itself or in some fiduciary capacity.
3. The transaction is pursuant to an offer directed by the franchisor
  to not more than two persons, other than persons specified in this
  subdivision, if the franchisor does not grant the franchisee the right
  to offer franchises to others, a commission or other remuneration is not
  paid directly or indirectly for soliciting a prospective franchisee in
  this state, and the franchisor is domiciled in this state or has filed
  with the department of law its consent to service of process on the form
  prescribed by the department.
4. The offer or sale by a franchisor of a franchise to one of his
  existing franchisees. This exemption shall apply where:
  1. The existing franchisee has actively operated a franchise of the
    selling franchisor for the eighteen months preceding the offer; and
  2. The existing franchisee purchases the franchise in order to operate the business and not for the purpose of resale; and
  3. The franchisor reports the sale to the department of law on the form required by the department within fifteen days of the sale.
The department of law may, in its discretion, deny or revoke an exemption with respect to a specific franchisor or transaction, or withdraw or further condition any exemption enumerated in this section.
The offer or sale of a franchise by a franchisee for his own account or the offer and sale of an entire area franchise owned by a subfranchisor for his own account is exempted from the registration provisions of section six hundred eighty-three of this article if:
1. The sale is an isolated sale and not part of a plan of distribution of franchises; and
2. The sale is not effected by or through a franchisor; and
3. The franchisee furnishes to the prospective purchaser, at least one week prior to the execution of any binding contract or purchase agreement, or at least one week prior to the receipt of any consideration, whichever occurs first, a copy of the offering prospectus of the franchisor (including amendments, if any) currently registered with the department of law. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.
This article shall not be applicable to any transaction relating to a bank credit card plan. “Bank credit card plan” means a credit card plan in which the issuers of credit cards are only: banks regulated by or under the supervision of the Federal Reserve Board; the Federal Deposit Insurance Corporation; the Controller of the Currency of the United States; or the Superintendent of Financial Services of this state; or persons controlling such banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which such card issuers may be a party; or, persons controlled by such banks.

To learn more about the franchising requirements for New York, please visit this website.

North Dakota

North Dakota offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

Any offer to sell or sale of a franchise organized and existing under the laws of any state as a nonprofit corporation for the exclusive use and benefit of its own members which satisfies the following conditions is exempt from the registration requirements imposed by North Dakota Century Code section 51-19-03, provided the governing board of the corporation certifies to the securities commissioner by resolution that such conditions are being met:

1. Control and ownership of each member is substantially equal;

2. Membership is limited to those who avail themselves of the services furnished by the organization;

3. Transfer of ownership interest is prohibited or limited;

4. Capital investment receives no return;

5. Members are not personally liable for obligations of the corporation in the absence of a direct undertaking or authorization by them;

6. Services provided to the membership are furnished primarily for the use of the members;

7. Each member and prospective member is provided with the most recent audited financial statements, bylaws, articles of incorporation, rules and regulations, and agreement; and

8. The corporation has had at least twenty-five franchises conducting business at all times during the five-year period immediately preceding the proposed offer or sale of a franchise, or has conducted business which is the subject of the franchise continuously for not less than five years preceding the proposed offer or sale of a franchise. Any entity which has certified to the securities commissioner that the conditions listed in this section have been met, and which subsequently modifies its structure resulting in one or more of the conditions becoming non-applicable, shall immediately notify the commissioner of such modification.

To learn more about the franchising requirements for North Dakota, please visit this website.

Rhode Island

Rhode Island offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(1) The offer or sale of a franchise if all of the following conditions are satisfied

(i) Either the franchisor’s most recent audited financial statements show a net worth of at least ten million dollars ($10,000,000) or the franchisor is at least eighty percent (80%) owned by a person that unconditionally guarantees the franchisor’s performance; that consents to service of process in this state; and whose most recent audited financial statements show a net worth of at least ten million dollars ($10,000,000);

(ii) The franchisor or person owning at least eighty percent (80%) of the franchisor had, and currently has, at least twenty-five (25) franchisees that have conducted substantially the same franchised business to be offered or sold at no fewer than twenty-five (25) locations for the entire five-year (5) period immediately preceding the offer or sale of the franchise;

(iii) The offeree receives the disclosure document at least fourteen (14) calendar days prior to the execution by the offeree of any binding agreement or at least fourteen (14) calendar days prior to the direct or indirect receipt of a franchise fee by the franchisor from the offeree, whichever first occurs; and

(iv) The franchisor annually files a notice of exemption with the director. The notice of exemption shall include the disclosure documents and the fee prescribed by § 19-28.1-29 and shall be filed prior to an offer or sale of a franchise in this state. The exemption expires fifteen (15) months from the date of the most recent audited financial statement filed unless the director prescribes a different period by rule or order.

(2) The offer or sale of a franchise by a franchisee who is not an affiliate of the franchisor for the franchisee’s own account if the franchisee’s entire franchise is sold and the sale is not effected by or through the franchisor. A sale is not effected by or through a franchisor merely because a franchisee signs agreements with terms that do not materially differ from the agreements with the existing franchisee or because a franchisor has a right to approve or disapprove the sale or requires payment of a reasonable transfer fee. This exemption applies to the offer or sale of a master franchise if the entire master franchise is sold.

(3) The offer or sale of a franchise to a person who has been, for at least two (2) years, an officer, director, partner, or affiliate of the franchisor for that person’s own account.

(4) The offer or sale of a franchise to a purchaser for the purchaser’s own account who:

(i) Has a net worth of at least one million dollars ($1,000,000) (in the case of a natural person, including the property of the purchaser’s spouse but excluding primary residence, personal vehicles and personal effects) or had an individual income, or joint income, including that person’s spouse, in excess of two hundred thousand dollars ($200,000) in each of the two (2) most recent years and has a reasonable expectation of reaching the same income level in the current year; and

(ii) Has the knowledge and experience in financial and business matters that the person is capable of evaluating the merits and risks of the franchise.

(5) The offer or sale to an existing franchisee of an additional franchise that is substantially the same as the franchise that the franchisee has operated for at least two (2) years at the time of the offer or sale.

(6) The offer or sale of a franchise involving a renewal, extension, modification, or amendment of an existing franchise agreement if there is no interruption in the operation of the franchised business and there is no material change in the franchise relationship. For purposes of this subdivision, an interruption in the operation of the franchised business solely for the purpose of renovating or relocating that business is not a material change in the franchise relationship or an interruption in the operation of the franchise business.

(7) The offer or sale of a franchise by an executor, administrator, sheriff, marshal, receiver, trustee, trustee in bankruptcy, guardian, or conservator on behalf of a person other than the franchisor or the estate of the franchisor.

(8) The offer of a franchise by the franchisor during the period of registration has expired and is pending renewal under § 19-28.1-9 or an application to amend a registration under § 19-28.1-11, if the offeree receives the newly registered disclosure document at least fourteen (14) calendar days before the offeree’s execution of any binding agreement or at least fourteen (14) calendar days prior to the receipt of a franchise fee by the franchisor from the offeree, whichever first occurs. Changes from the documents last registered must be marked to show changes.

(9) The offer or sale of rights to a person to sell goods or services within, or adjacent to, a retail establishment as a department or division; provided that the person is not required to purchase goods or services from the operator of the retail establishment.

(10) The offer and sale of a franchise that the director, by rule or order, exempts when registration is not necessary or appropriate in the public interest or for the protection of prospective franchisees.

To learn more about the franchising requirements for Rhode Island, please visit this website.

Virginia

Virginia offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

Sale or transfer by existing franchisee. The sale or transfer of a franchise by a franchisee who is not an affiliate of the franchisor for the franchisee’s own account is exempt if:

The franchisee’s entire franchise is sold or transferred, and the sale or transfer is not effected by or through the franchisor.
The sale or transfer is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove the sale or transfer or requires payment of a reasonable transfer fee.

Renewal or extension of existing franchise. The offer or sale of a franchise involving a renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business, and there is no material change in the franchise relationship, is exempt. For purposes of this subdivision, an interruption in the franchised business solely for the purpose of renovating or relocating that business is not a material change in the franchise relationship or an interruption in the operation of the franchised business.
Offers and sales to existing franchisees. The offer or sale of an additional franchise to an existing franchisee of the franchisor for the franchisee’s own account is exempt if the franchise being sold is substantially the same as the franchise that the franchisee has operated for at least two years at the time of the offer or sale of the franchise, provided the prior sale to the franchisee was pursuant to a franchise offering that was registered or exempt pursuant to the requirements of the Act.
Seasoned franchisor.

The offer or sale of a franchise by a franchisor is exempt if:
1. The franchisor has a net equity, according to its most recently audited financial statements, of not less than $15 million on a consolidated basis, or $1 million on an unaudited basis and is at least 80% owned by a corporation or entity that has a net equity, on a consolidated basis, according to its most recently audited financial statements, of not less than $15 million, and the 80% owner guarantees the performance of the franchisor’s obligations;
2. The auditor’s report accompanying the audited financial statements described in subdivision 4 a (1) of this section does not contain an explanatory paragraph expressing doubt as to the entity’s ability to continue as a going concern; and
3. The franchisor or any 80% owner of the franchisor or the franchisor’s predecessor, or any combination thereof, has had at least 25 franchisees conducting substantially the same franchise business to be offered or sold for the entire five-year period immediately preceding the offer or sale.
The exemption set forth in this subdivision 4 may be claimed only if the franchisor:
1. Files a Form H Notice of Claim of Exemption and other material as set forth in subdivision 8 of this section no later than 10 business days before the offer or sale of any franchise; and
2. Submits financial statements demonstrating compliance with the conditions set forth in subdivision 4 a (1) of this section.
An initial exemption filing and any renewal filing shall expire after a period of one year. The franchisor shall file for a renewal by making an exemption filing if it intends to offer or sell franchises for any additional period annually, at least 10 business days before the expiration of the previously filed Notice of Claim of Exemption.

Institutional franchisee.
1. The offer or sale of a franchise to a bank, savings bank, savings and loan association, trust company, insurance company, investment company, or other financial institution, or to a broker-dealer is exempt when the:
  1. Purchaser is acting for itself or in a fiduciary capacity; and
  2. Franchise is not being purchased for the purpose of resale to an individual not exempt under this regulation.
2. The exemption set forth in subdivision 5 a of this section may be claimed only if the franchisor files an initial filing Form H, Notice of Claim of Exemption, and other material as set forth in subdivision 8 a of this section, at least 10 business days before each offer or sale of each franchise.
Substantial investment.
1. The offer or sale of a franchise by a franchisor is exempt if:
  1. The offer or sale is of a single unit franchise in which the actual minimum initial investment is in excess of $3 million. This amount will be based on the Item 7 requirements of the Franchise Disclosure Document;
  2. The prospective franchisee is represented by legal counsel in the transaction; and
  3. The franchisor reasonably believes immediately before making the offer or sale that the prospective franchisee, either alone or with the prospective franchisee’s representative or affiliates, has sufficient knowledge and experience such that the prospective franchisee is capable of evaluating the merits and risks of the prospective franchise investment.
2. The exemption set forth in subdivision 6 a of this section may be claimed only if the franchisor:
  1. Files a Form H, Notice of Claim of Exemption, and other materials as set forth in subdivision 8 of this section no later than 10 business days before the offer or sale of any franchise; and
  2. Obtains from the prospective franchisee a signed certification verifying the grounds for the exemption.
3. The exemption set forth in subdivision 6 a of this section applies only to the registration provisions, and not the disclosure provisions, of the Act.
4. An initial exemption filing and any renewal filing shall expire after a period of one year. The franchisor shall file for a renewal by making an exemption filing if it intends to offer or sell franchises for any additional period annually at least 10 business days before the expiration of the previously filed Form H, Notice of Claim of Exemption.
Disclosure requirements. If a franchisor relies upon any of the exemptions set forth in subdivision 3, 4, 5, or 6 of this section, the franchisor shall provide a disclosure document complying with 21VAC5-110-55and 21VAC5-110-95together with all proposed agreements relating to the sale of the franchise to a prospective franchisee 14 calendar days before the signing of the agreement or the payment of any consideration.
Filing requirements for exemptions set forth in subdivisions 4, 5, and 6 of this section.
1. Initial exemption filing.
  1. The initial exemption period shall expire after a period of one year.
  2. The franchisor files an application for exemption of a franchise by filing with the commission no later than 10 business days before the offer or sale of any franchise, the following completed forms and other material:
    1. Notice of Claim of Exemption, Form H;
    2. Uniform Consent to Service of Process, Form C;
    3. If the applicant is a corporation or partnership, an authorizing resolution is required if the application is verified by a person other than applicant’s officer or general partner;
    4. Franchise Disclosure Document on a CD-ROM in PDF format or on other electronic media approved by the Division of Securities and Retail Franchising;
    5. An undertaking by which it agrees to supply any additional information the commission may reasonably request; and
    6. Application fee of $500 (payable to the Treasurer of Virginia).
2. Amendment to exemption filing.
  1. Upon the occurrence of a material change, the franchisor shall amend the effective exemption filed at the commission.
  2. An application to amend a franchise exemption is made by submitting the following completed forms and other material:
    1. Notice of Claim of Exemption, Form H;
    2. One clean copy of the amended Franchise Disclosure Document on a CD-ROM in PDF format or on other electronic media approved by the Division of Securities and Retail Franchising; and
    3. Application fee of $100 (payable to the Treasurer of Virginia).
3. Renewal exemption filing.
  1. A franchise exemption expires at midnight on the annual exemption effective date. An application to renew the franchise exemption shall be filed 10 days prior to the expiration date in order to prevent a lapse of exemption under the Act.
  2. An application for renewal of a franchise exemption is made by submitting the following completed forms and other material:
    1. Notice of Claim of Exemption, Form H;
    2. One clean copy of the Franchise Disclosure Document on a CD-ROM in PDF format or on other electronic media approved by the Division of Securities and Retail Franchising; and
    3. Application fee of $250 (payable to the Treasurer of Virginia).

To learn more about the franchising requirements for Virginia, please visit this website.

Washington

There are a handful of exemptions to Washington’s franchise registration requirements. These are complicated exemptions and should be discussed in greater detail with a franchise lawyer prior to use. Under §19.100.030 of Washington law, registration requirements do not apply to:

(1) The offer or sale or transfer of a franchise by a franchisee who is not an affiliate of the franchisor for the franchisee’s own account if the franchisee’s entire franchise is sold and the sale is not effected by or through the franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove the sale or requires payment of a reasonable transfer fee. Such right to approve or disapprove the sale shall be exercised in a reasonable manner.

(2) The offer or sale of a franchise by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, conservator, or pursuant to a court-approved offer or sale, on behalf of a person other than the franchisor or the estate of the franchisor.

(3) The offer or sale of a franchise to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit sharing trust, or other financial institution or institutional buyer or to a broker dealer where the purchaser is acting for itself or in some fiduciary capacity.

(4) The offer or sale of a franchise by a franchisor:

(a) Who has delivered in writing to each prospective franchisee, at least fourteen calendar days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least fourteen calendar days prior to the receipt of any consideration, whichever occurs first, a disclosure document complying with guidelines adopted by rule of the director. The director shall be guided in adopting such a rule by the guidelines for the preparation of the disclosure document adopted by the federal trade commission or the North American Securities Administrators Association, Inc., or its successor, as such guidelines may be revised from time to time; and

(b) Who either:

(i)(A) Has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars or who has a net worth, according to its most recent audited financial statement, of not less than one million dollars and is at least eighty percent owned by a corporation which has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars; and

(B) Has had at least twenty-five franchisees conducting business at all times during the five-year period immediately preceding the offer or sale or has conducted business which is the subject of the franchise continuously for not less than five years preceding the offer or sale or if any corporation which owns at least eighty percent of the franchisor, has had at least twenty-five franchisees conducting business at all times during the five-year period immediately preceding the offer or sale or such corporation has conducted business which is the subject of the franchise continuously for not less than five years preceding the offer or sale; and

(D) Files annually with the director a statement prescribed by rule of the director giving notice of such claim, and pays a filing fee as set forth in RCW 19.100.240;

(ii)(A) Has no outstanding franchises granted for businesses located or to be located outside the state of Washington; and

(B) Has granted and grants no more than three franchises for franchise businesses to be situated within the state of Washington; and

(D) The buyer is represented or advised in the transaction by independent legal counsel or certified public accountant; OR

(iii) Does not charge a franchise fee, as defined in *RCW 19.100.010(12), in excess of five hundred dollars; and

(c) Who has not been found by a court of competent jurisdiction to have been in violation of this chapter, chapter 19.86 RCW, or any of the various federal statutes dealing with the same or similar matters, within seven years of any sale or offer to sell franchise business under franchise agreement in the state of Washington.

(5) The offer or sale of a franchise to an accredited investor, as defined by rule adopted by the director. The director shall be guided in adopting such a rule by the rules defining accredited investor promulgated by the federal securities and exchange commission.

(6) The offer or sale of an additional franchise to an existing franchisee of the franchisor for the franchisee’s own account that is substantially the same as the franchise that the franchisee has operated for at least two years at the time of the offer or sale, provided the prior sale to the franchisee was pursuant to a franchise offering that was registered in the state of Washington.

To learn more about the franchising requirements for Washington, please visit this website.

Wisconsin

Wisconsin offers a handful of exemptions to their franchise registration requirements. These exemptions are complicated and should be discussed in greater detail with a franchise attorney. The exemptions are listed below:

(1) Any relationship if the person described in the offer as a franchisee, or any of the current directors or executive officers of that person, has been in the type of business of the franchise relationship for more than 2 years and the parties anticipated, or should have anticipated, at the time the agreement establishing the franchise relationship was reached, that the sales arising from the relationship would account for no more than 20 percent of the gross sales revenue of the franchisee for a period of at least one year after the franchisee begins selling the goods or services involved in the franchise.

(2) An association of producers of agricultural products authorized by 7 USC 291.

(3) An organization that is operated on a cooperative basis by and for independent retailers and that sells goods at wholesale to, or furnishes services primarily to, its members.

To learn more about the franchising requirements for Wisconsin, please visit this website.