As the franchising industry recovers from the impact of adjusting to the new Federal Trade Commission’s Franchise Rule disclosure format, a topic that looms increasingly large on the horizon is the increase in the sheer number of franchise systems. States that regulate franchising are experiencing record increases in the number of new filings. And franchisors are waiting longer than ever for registrations to be effective.
How do exemptions help? Exemptions can allow a franchisor to avoid registration requirements in states, and in some cases, disclosure obligations. They free up state resources for oversight of new franchises and systems that may present a greater risk to prospective franchisees. But anyone who has taken the time to look into exemptions may easily be dissuaded by the patchwork quilt of different exemptions that exist federally and from state to state. Even the same type of exemption can have different conditions, depending on whether the franchise will be operated in California or Kalamazoo.
Yet, the benefits can be worth exploring in many instances. Offered here is an analysis of the types of franchises and transactions that are more likely to qualify for exemption and the pitfalls to avoid in trying to take advantage of them.