New FTC Business Opportunity Rule May Apply to Some Exempt Franchisors

Vol. 16 No. 1


Greensfelder, Hemker & Gale, P.C.

While not all franchise systems are suited for exemption-based franchising, there are a fair number of franchisors that take advantage of the exemptions contained in the FTC Franchise Rule. 16 C.F.R. § 436.8 (2007). However, franchisors relying on the minimum initial payments exemption, 16 C.F.R. § 436.8(a)(1), as well as those (likely few) relying on the no written documents exemption, 16 C.F.R. § 436.8(a)(7), to avoid applicability of the FTC Franchise Rule, need to take a close look at the new FTC Business Opportunity Rule, 16 C.F.R. § 437 (2011), which went into effect on March 1, 2012. The new FTC Business Opportunity Rule contains an exemption for franchises subject to the FTC Franchise Rule, but this exemption specifically excludes those franchises exempted from the FTC Franchise Rule because of the two exemptions described above. 16 C.F.R. § 437.8. This is not to say that all franchises falling outside the franchise exemption will necessarily be subject to the disclosure requirements of the FTC Business Opportunity Rule. The definition of a business opportunity may still not apply to the franchise system, and thus the franchisor can escape the relatively light disclosure obligations of the FTC Business Opportunity Rule. Franchise practitioners, however, will definitely want to analyze this issue for any franchisors relying on either the minimum initial payments exemption or no written documents exemption to ensure that they are not subject to any additional disclosure requirements under the FTC Business Opportunity Rule.

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