Current through Register Vol. 41, No. 3, September 23, 2024
Any offer or sale of a franchise in a transaction that meets
the requirements of this section is exempt from the registration requirement of
§
13.1-560 of
the Act.
1. 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:
a. The franchisee's entire franchise is
sold or transferred, and the sale or transfer is not effected by or through the
franchisor.
b. 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.
2. 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.
3. 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.
4. Seasoned franchisor.
a. 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;
b. 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.
c. 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.
5. Institutional franchisee.
a. 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.
b. 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.
6. Substantial investment.
a. 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.
b. 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.
c. 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.
d. 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.
7. 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
21VAC5-110-55
and
21VAC5-110-95
together 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.
8. Filing requirements for exemptions set
forth in subdivisions 4 , 5, and 6 of this section.
a. 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:
(a) Notice of Claim of Exemption, Form
H;
(b) Uniform Consent to Service
of Process, Form C;
(c) 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;
(d)
Franchise Disclosure Document on a CD-ROM in PDF format or on other electronic
media approved by the Division of Securities and Retail Franchising;
(e) An undertaking by which it agrees to
supply any additional information the commission may reasonably request;
and
(f) Application fee of $500
(payable to the Treasurer of Virginia).
b. 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:
(a) Notice of Claim of
Exemption, Form H;
(b) 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
(c) Application
fee of $100 (payable to the Treasurer of Virginia).
c. 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:
(a) Notice of Claim of Exemption,
Form H;
(b) 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
(c) Application fee of $250
(payable to the Treasurer of Virginia).
Statutory Authority: §§
12.1-13
and
13.1-572 of the
Code of Virginia.
