HF 4801

as introduced - 92nd Legislature (2021 - 2022) Posted on 04/21/2022 10:09am

A bill for an act
relating to commerce; establishing a large franchise exemption; proposing coding
for new law in Minnesota Statutes, chapter 80C.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [80C.035] EXPERIENCED FRANCHISOR EXEMPTION.
new text end

new text begin Subdivision 1. new text end

new text begin Exemption provided. new text end

new text begin (a) The registration provisions under section
80C.02 do not apply to any offer or sale, including transfer, of a franchise if the franchisor
complies with paragraphs (b) to (e).
new text end

new text begin (b) The franchisor must have shareholder, member, or partner equity of at least:
new text end

new text begin (1) $10,000,000 on a consolidated basis, according to the franchisor's audited financial
statements for the immediately preceding fiscal year; or
new text end

new text begin (2) $1,000,000 according to the franchisor's financial statements for the immediately
preceding fiscal year which may be audited or unaudited; and
new text end

new text begin (i) the franchisor must be at least 80 percent directly or indirectly owned by a corporation
or entity that has shareholder, member, or partner equity of at least $10,000,000 on a
consolidated basis, according to the entity's audited financial statements for the immediately
preceding fiscal year;
new text end

new text begin (ii) if the franchisor does not prepare audited financial statements because the franchisor's
parent company prepares consolidated audited financial statements, the franchisor must
submit a statement, made by one of the franchisor's officers under penalty of perjury,
confirming that the franchisor has shareholder, member, or partner equity of at least
$1,000,000 for the immediately preceding fiscal year; and
new text end

new text begin (iii) the 80 percent owner must unconditionally guarantee to assume the duties and
obligations of the franchisor under the franchise agreement.
new text end

new text begin (c) The franchisor or the franchisor's 80 percent owner must, at all times during the
five-year period immediately preceding the offer or sale, have at least 25 operating franchises
that: (1) are conducting substantially the same business as the franchise being offered; and
(2) have been in operation for at least 24 months.
new text end

new text begin (d) During the ten-year period immediately preceding the offer or sale, all of the following
must not have been convicted of or pleaded nolo contendere to a felony charge: a franchisor;
a predecessor; an affiliate that induces franchise sales by promising to back the franchisor
financially or otherwise guarantees the franchisor's performance; an affiliate who offers
franchises under the franchisor's principle trademark; and a franchisor's director, trustee,
general partner, principal officer, or other individual who has management responsibility
relating to the sale or operation of franchises.
new text end

new text begin (e) The franchisor, a predecessor, or an affiliate who induces franchise sales by promising
to back the franchisor financially or otherwise guarantees the franchisor's performance, an
affiliate who offers franchises under the franchisor's principal trademark, and a franchisor's
director, trustee, general partner, principal officer, or other individual who has management
responsibility relating to the sale or operation of franchises must not be subject to a currently
effective:
new text end

new text begin (1) Securities and Exchange Commission order, or order made by the securities
administrator of another state, that denies registration to, revokes the registration of, or
suspends the registration of the person as a securities broker or dealer or investment adviser;
new text end

new text begin (2) order made by a national securities association or national securities exchange, as
defined in the Securities and Exchange Act of 1934, that suspends or expels the person from
membership in the association or exchange; or
new text end

new text begin (3) injunctive order, restrictive order, decree, or judgment, issued during the ten-year
period immediately preceding the offer or sale, that is the result of a pending or concluded
action relating to the franchise or to a federal, state, or Canadian franchise, securities,
antitrust, trade regulation, or trade practice law, provided the action was brought by any
federal or state public agency or department.
new text end

new text begin Subd. 2. new text end

new text begin Audited financial statements; requirements new text end new text begin . new text end

new text begin The audited financial statements
required under subdivision 1 must be accompanied by an auditor's report that:
new text end

new text begin (1) contains an unqualified opinion within the meaning of: (i) the Statement on Auditing
Standards No. 79, issued by the American Institute of Certified Public Accountants and
codified at AU § 508, as amended; or (ii) an equivalent provision from the standards of the
applicable governing body for accounting principles, as permitted for use by the Securities
and Exchange Commission; and
new text end

new text begin (2) does not contain a going concern explanatory paragraph.
new text end

new text begin Subd. 3. new text end

new text begin Applicability; effect of filing. new text end

new text begin (a) A franchisor or the 80 percent owner may
claim the exemption under subdivision 1 only if the franchisor or the 80 percent owner:
new text end

new text begin (1) files a notice of exemption in the form prescribed by the commissioner at least 14
calendar days before the offer or sale of any franchise in Minnesota that is subject to this
exemption;
new text end

new text begin (2) files a consent to service of process that names the commissioner as the franchisor's
agent to receive process in Minnesota;
new text end

new text begin (3) pays a $400 fee to file the exemption;
new text end

new text begin (4) submits financial statements demonstrating compliance with this section;
new text end

new text begin (5) submits a written certification that the franchisor meets all of the conditions
established under this section; and
new text end

new text begin (6) files with the commissioner, in a format prescribed by the commissioner, one copy
of the franchisor's current franchise disclosure document prepared under the Federal Trade
Commission franchise rule, Code of Federal Regulations, title 16, part 436, or under the
franchise registration and disclosure law of another state.
new text end

new text begin (b) By filing a notice of exemption under this subdivision, the franchisor agrees to supply
any additional information related to the franchise offering that the commissioner may
reasonably request.
new text end

new text begin (c) A notice of exemption filed under paragraph (a), clause (1), expires one year after
the date the notice of exemption is filed. A franchisor may seek to extend a notice of
exemption granted under this section. In order to seek an extension under this paragraph,
the franchisor must file a notice of exemption, submit all of the documents required under
paragraph (a), and pay the fee required for filing an exemption at least 14 calendar days
before the current notice of exemption expires.
new text end

new text begin Subd. 4. new text end

new text begin Commissioner's authority. new text end

new text begin The commissioner may by order or written notice:
(1) summarily deny, suspend, or revoke an exemption claimed under this section; or (2)
condition the exemption on additional requirements, if in the commissioner's discretion
granting the exemption does not serve the public interest or adequately protect prospective
franchisees. The commissioner's summary denial, suspension, or revocation of an exemption
under this subdivision does not affect a franchisor's registration filed under section 80C.02.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for offers and sales occurring on or after
January 1, 2023.
new text end