As we reported in July 2011, the North American Securities Administrators Association (NASAA) last year proposed "Model Franchise Exemptions" relating to state franchise registration and disclosure laws. The original Proposal was made public last summer and the NASAA accepted comments for the Proposal through August 1, 2011.
After analyzing the comments, the NASAA’s Franchise and Business Opportunity Project Group today re-released for comment the proposed changes to NASAA’s Model Franchise Exemptions. The substantive changes to the Model Franchise Exemptions include:
- placing a 1-year expiration date to the proposed Fractional Franchise Exemption to make the exemption any annual filing;
- eliminating the requirement that the regulator find a "reasonable basis" for anticipating sales volumes to qualify for the Fractional Franchise Exemption and instead adding a requirement that both franchisor and franchisee must be capable of demonstrating that franchisee can derive 80% of total dollar volume of sales independent of franchise relationship;
- prohibiting a franchisor utilizing the Experienced Franchisor Exemption from having a going concern paragraph (footnote) in its financial statements;
- allowing a subsidiary franchisor to submit a sworn affidavit that its shareholders/members have equity of not less than $1,000,000 to establish the Experienced Franchisor Exemption where the franchisor does not prepare its own financials;
- removed the financial statement specifications necessary for certain purchasers to claim the Sophisticated Franchisee (Accredited Investor); and
- made the requirement that a franchisee claiming the Sophisticated Franchisee (Accredited Investor) have legal counsel optional for each state.
The comment period is 30 days so anyone wishing to provide comments must submit them to the Chair of the Project Group, Dale Cantone or NASAA Counsel, Joseph Opron, on or before May 16, 2012.