TITLE 19
Financial institutions

CHAPTER 19-28.1
Franchise Investment Act

SECTION 19-28.1-6


§ 19-28.1-6 Exemption from registration.

The following transactions are exempt from the provisions of § 19-28.1-5:

(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 which 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.

History of Section.
(P.L. 1993, ch. 395, § 2; P.L. 2016, ch. 153, § 2; P.L. 2016, ch. 159, § 2.)