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90_HB3463
815 ILCS 705/5 from Ch. 121 1/2, par. 1705
815 ILCS 705/10 from Ch. 121 1/2, par. 1710
815 ILCS 705/11 from Ch. 121 1/2, par. 1711
815 ILCS 705/16 from Ch. 121 1/2, par. 1716
815 ILCS 705/22 from Ch. 121 1/2, par. 1722
815 ILCS 705/25 from Ch. 121 1/2, par. 1725
815 ILCS 705/26 from Ch. 121 1/2, par. 1726
815 ILCS 705/13 rep.
815 ILCS 705/15 rep.
815 ILCS 705/30 rep.
Amends the Franchise Disclosure Act of 1987. Provides
that the disclosure statement required under this Act shall
be prepared in accordance with the Uniform Franchise Offering
Circular Guidelines as adopted and amended by the North
American Securities Administrators Association, Incorporated
rather than as provided by rule by the Attorney General.
Removes provisions regarding the ability of the Attorney
General to require the escrow or impoundment of franchise
fees and other funds paid by the franchisee to the franchisor
if the franchisor has failed to demonstrate that adequate
financial arrangements have been made to fulfill obligations
to the franchisee. Removes provisions providing that an
advertisement offering to sell or purchase a franchise shall
be reviewed and approved by the Attorney General prior to
being published. Makes other changes removing a number of
provisions. Effective immediately.
LRB9009391SMdv
LRB9009391SMdv
1 AN ACT concerning franchise disclosure laws.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 5. The Franchise Disclosure Act of 1987 is
5 amended by changing Sections 5, 10, 11, 16, 22, 25, and 26 as
6 follows:
7 (815 ILCS 705/5) (from Ch. 121 1/2, par. 1705)
8 Sec. 5. Prohibited practices. (1) Sale of unregistered
9 franchise unlawful. It is unlawful for any person to offer or
10 sell any franchise required to be registered under this Act
11 unless the franchise has been registered under this Act or is
12 exempt under this Act.
13 (2) Failure to deliver a disclosure statement unlawful.
14 It is unlawful for any person to offer or sell any franchise
15 which is required to be registered under this Act without
16 first providing to the prospective franchisee at least 14 10
17 business days prior to the execution by the prospective
18 franchisee of any binding franchise or other agreement, or at
19 least 10 business days prior to the receipt by such person of
20 any consideration, whichever occurs first, a copy of a
21 disclosure statement meeting the requirements of this Act and
22 registered by the Administrator, together with a copy of all
23 proposed agreements relating to the sale of the franchise.
24 For the purposes of this Act, delivery of a disclosure
25 statement to a general partner of a partnership shall
26 constitute delivery to the partnership and its partners and
27 delivery of a disclosure statement to a principal officer of
28 a corporation shall constitute delivery to the corporation
29 and its shareholders.
30 (3) Sale of franchise by unregistered franchise broker
31 unlawful. It is unlawful for any franchise required to be
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1 registered under this Act to be offered for sale or sold in
2 this State by a franchise broker subject to this Act who is
3 not first registered under this Act unless exempt from
4 registration.
5 (4) Filing of untrue report unlawful. It is unlawful for
6 any person to make or cause to be made any untrue statement
7 of a material fact in any application, notice, or report
8 filed with the Administrator, or to omit to state in any
9 application, notice, or report any material fact, or to fail
10 to notify the Administrator of any material change in such
11 application, notice, or report, as required by this Act and
12 the rules and regulations promulgated thereunder.
13 (Source: P.A. 85-551.)
14 (815 ILCS 705/10) (from Ch. 121 1/2, par. 1710)
15 Sec. 10. Registration and Annual Report. No franchisor
16 may sell or offer to sell a franchise in this State if (1)
17 the franchisee is domiciled in this State or (2) the offer of
18 the franchise is made or accepted in this State and the
19 franchise business is or will be located in this State,
20 unless the franchisor has registered the franchise with the
21 Administrator by filing such form of notification application
22 and disclosure statement as required under Section 16 as the
23 Administrator may by rule or order require. The Administrator
24 may require the filing with the Administrator of such other
25 information or documents as are necessary or appropriate in
26 the public interest or for the protection of prospective
27 franchisees and may, but need not, require that such
28 additional information or documents be furnished to
29 prospective franchisees as part of the disclosure statement.
30 The registration of a franchise shall become effective on
31 the 20th business day after the date of the filing of the
32 required materials, unless prior thereto one of the following
33 events has taken place: (1) the Administrator has entered an
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1 order suspending, terminating, prohibiting or denying the
2 registration of the franchise or franchise broker; or (2) the
3 Administrator has notified the franchisor or its
4 representative that the materials filed do not meet the
5 requirements of this Act, and the reasons therefor; or (3)
6 the Administrator in his discretion upon written request of
7 the franchisor, has granted acceleration so as to provide for
8 an effective date prior to the 20th business day.
9 Annually, but not later than one business day 30 days
10 before the anniversary date of the registration, the
11 franchisor shall file a report in a form prescribed by rule
12 of the Administrator. The report shall contain such documents
13 and information as the Administrator may by rule or order
14 require including, without limitation, the disclosure
15 statement updated as of a date within 120 days of the
16 anniversary date of the registration. The Administrator may,
17 in his discretion, review such report and disclosure
18 statement and notify the franchisor that additional
19 information or other modification of the disclosure statement
20 be included or deleted from the report and disclosure
21 statement, or issue an order under Section 23 of this Act, as
22 may be necessary or appropriate in the public interest, or
23 for the protection of prospective franchisees. The notice
24 issued by the Administrator may, at the Administrator's
25 discretion, suspend the right of the franchisor to offer to
26 sell franchises until the specified deficiencies are cured.
27 From the date the annual report is filed until the
28 anniversary date of the registration, the franchisor may
29 continue to use the previously registered disclosure
30 statement or the disclosure statement that is filed with the
31 annual report provided that, if the disclosure statement
32 filed with the annual report contains any material change in
33 any matter required to be disclosed, the franchisor shall
34 deliver the disclosure statement in accordance with the
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1 requirements of subsection (2) of Section 5. The sale of a
2 franchise after the filing of the updated disclosure
3 statement and before the franchisor's receipt of a notice
4 from the Administrator requiring additional information or
5 other modification of the updated disclosure statement shall
6 be deemed the sale of a registered franchise, provided that
7 the updated disclosure statement contains all required
8 exhibits and the franchisor complies with the requirements of
9 subsection (2) of Section 5 with respect to the updated
10 disclosure statement. The fact that the franchise is
11 considered to be registered is not a finding that the updated
12 disclosure statement complies with the standard of disclosure
13 required by this Act.
14 (Source: P.A. 87-1143.)
15 (815 ILCS 705/11) (from Ch. 121 1/2, par. 1711)
16 Sec. 11. Amendments. Within 90 days of Upon the
17 occurrence of any material change in any facts required to be
18 disclosed, a franchisor whose franchise is registered under
19 this Act shall amend its disclosure statement and shall
20 deliver the amended disclosure statement in accordance with
21 the requirements of subsection (2) of Section 5 and Section
22 16 of this Act to any prospective franchisee, including
23 prospective franchisees to whom a disclosure statement was
24 previously delivered if the material change relates to or
25 affects the franchisor or the franchise offered to such
26 prospective franchisees. The Administrator may by rule define
27 what shall constitute a material change. The amended
28 disclosure statement shall be filed with the Administrator
29 who may require additional information or other modification
30 of the amended disclosure statement under Section 16 of this
31 Act or issue an order under Section 23 of this Act. The
32 notice issued by the Administrator may, at the
33 Administrator's discretion, suspend the right of the
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1 franchisor to offer and sell franchises until the specified
2 deficiencies are cured. An amendment shall not be required if
3 the terms of the franchise agreement merely reflect changes
4 from the franchisor's registered franchise made pursuant to
5 negotiations between the franchisee and the franchisor. The
6 sale of a franchise after the filing of an amended disclosure
7 statement and before the franchisor's receipt of a notice
8 from the Administrator requiring additional information or
9 other modification of the amended disclosure statement shall
10 be deemed the sale of a registered franchise, provided that
11 the amended disclosure statement contains all required
12 exhibits and the franchisor complies with the requirements of
13 subsection (2) of Section 5 with respect to the amended
14 disclosure statement.
15 The fact that the franchise is considered to be
16 registered is not a finding that the amended disclosure
17 statement complies with the standard of disclosure required
18 by this Act.
19 (Source: P.A. 87-1143.)
20 (815 ILCS 705/16) (from Ch. 121 1/2, par. 1716)
21 Sec. 16. Form and contents of disclosure statements. The
22 disclosure statement required under this Act shall be
23 prepared in accordance with the Uniform Franchise Offering
24 Circular Guidelines as adopted and amended by the North
25 American Securities Administrators Association, Incorporated.
26 The Administrator shall by rule prescribe the form and
27 content of disclosure statements. The Administrator may by
28 rule or order require (a) that specified portions of the
29 disclosure statement be emphasized by italics, bold face type
30 or other means, and (b) that earnings or sales projections or
31 estimations be qualified by appropriate legend. No portion
32 of the disclosure statement shall be underscored, italicized
33 or printed in larger or bolder type than the balance of the
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1 statement unless the Administrator requires or permits it.
2 The Administrator, giving due regard to the desirability
3 of avoiding the burden of preparing duplicate disclosure
4 statements and similar documents, may by rule or order deem
5 to be in full or partial compliance with this Act any
6 disclosure statement which complies with the requirements of
7 any Federal law or administrative rule or with the law of any
8 other state, or is approved by an association of regulatory
9 agencies, which law, rule or approval requires substantially
10 the same disclosures to prospective franchisees as are
11 required under this Act.
12 All statements in the disclosure statement shall be free
13 from any false or misleading statement of a material fact,
14 shall not omit to state any material fact required to be
15 stated or necessary to make the statements not misleading,
16 and shall be accurate and complete as of the effective date
17 thereof.
18 When the disclosure statement is for a franchise offering
19 by a subfranchisor, the disclosure statement shall include
20 the information required by this Act with respect to the
21 subfranchisor instead of the franchisor; however, if the
22 franchisor from whom the subfranchisor acquired the right to
23 grant franchises is required to provide the franchisee with
24 goods, training programs, advertising, promotion,
25 supervision, assistance in site selections or other services,
26 the Administrator may in his discretion require the
27 disclosure statement for such franchise offering to include
28 part or all of the information required by this Act with
29 respect to both the subfranchisor and the franchisor from
30 whom the subfranchisor acquired the right to grant
31 franchises.
32 (Source: P.A. 85-551.)
33 (815 ILCS 705/22) (from Ch. 121 1/2, par. 1722)
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1 Sec. 22. Enforcement.
2 (a) The Administrator may suspend, terminate, prohibit or
3 deny the sale of any franchise or registration of any
4 franchise, or franchise broker or salesperson if it appears
5 to him that: (1) there has been a failure to comply with any
6 of the provisions of this Act or the rules or orders of the
7 Administrator pertaining thereto; or (2) that the disclosure
8 statement or any amendment thereto includes any false or
9 misleading statement of a material fact or omits to state any
10 material fact required to be stated therein or necessary to
11 make the statements therein not misleading is incomplete or
12 inaccurate in any material respect; or (3) (blank that the
13 disclosure statement or any amendment thereto includes any
14 false or misleading statement of a material fact or omits to
15 state any material fact required to be stated therein or
16 necessary to make the statements therein not misleading; or
17 (4) that the sale of the franchise would constitute a
18 misrepresentation, deceit or fraud upon prospective
19 franchisees; or (5) that any person in this State is engaging
20 in or about to engage in false, fraudulent or deceptive
21 practices or any device, scheme, or artifice to defraud in
22 connection with the offer or sale of the franchise; or (6)
23 that any person identified in the disclosure statement or any
24 person engaged in the offer or sale of the franchise in this
25 State has been convicted of an offense, is subject to an
26 order or civil judgment or is a defendant in a proceeding
27 required to be described in the disclosure statement and the
28 involvement of such person creates an unreasonable risk to
29 prospective franchisees; or (7) (blank) that anything
30 prohibited by this Act has been used in connection with the
31 offer or sale of the franchise; or (8) (blank) that the
32 financial condition of the franchisor affects or would affect
33 the ability of the franchisor to fulfill obligations under
34 the franchise or other agreement and the franchisor is unable
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1 or unwilling to comply with a rule or order of the
2 Administrator issued under Section 15 of this Act; or (9)
3 that the franchisor's enterprise or method of business
4 includes or would include activities which are illegal where
5 performed; or (10) (blank) that there are conditions
6 affecting the soundness of the franchise so that the sale
7 thereof would be fraudulent, inequitable or would work or
8 tend to work a fraud upon prospective franchisees; or (11)
9 (blank) that an applicant has failed to diligently process
10 its registration application with the Administrator.
11 In no case shall the Administrator, or any person
12 designated by him, in the administration of this Act, incur
13 any official or personal liability by issuing an order or
14 other proceeding or by suspending, denying, prohibiting or
15 terminating the registration of a franchise broker or
16 salesperson, or by denying, suspending, terminating or
17 prohibiting the registration of franchises, or prohibiting
18 the sale of franchises, or by suspending or prohibiting any
19 person from acting as a franchise broker or salesperson.
20 The Administrator may exercise any of the powers
21 specified in Section 31 of this Act.
22 (b) The Administrator, with such assistance as he may
23 from time to time request of the state's attorneys in the
24 several counties, may institute proceedings in the circuit
25 court to prevent and restrain violations of this Act or of
26 any rule or order prescribed or issued under this Act. In
27 such a proceeding, the court shall determine whether a
28 violation has been committed, and shall enter such judgment
29 or decree as it considers necessary to remove the effects of
30 any violation and to prevent such violation from continuing
31 or from being renewed in the future. The court, in its
32 discretion, may exercise all powers necessary for this
33 purpose, including, but not limited to, injunction,
34 revocation, forfeiture or suspension of the charter,
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1 franchise, certificate of authority or privileges of any
2 corporation, association, limited partnership or other
3 business organization operating under the laws of this State,
4 dissolution of domestic corporations or associations,
5 suspension or termination of the right of foreign
6 corporations or associations to do business in this State, or
7 restitution or payment of damages by a franchisor to persons
8 injured by violations of this Act, including without
9 limitation an award of reasonable attorneys fees and costs.
10 (Source: P.A. 85-551.)
11 (815 ILCS 705/25) (from Ch. 121 1/2, par. 1725)
12 Sec. 25. Criminal prosecution. Any person who willfully
13 sells a franchise in this State without complying with
14 Sections 5, 6, 10, or 11, 13 or 15 of this Act or who in a
15 disclosure statement or an amendment thereto willfully makes
16 any false or misleading statement of a material fact or
17 willfully omits to state any material fact required to be
18 stated therein or necessary to make the statements therein
19 not misleading, commits a class 2 felony and upon conviction
20 shall be subject to such punishment as provided by law. The
21 Administrator, with such assistance as he may from time to
22 time request of the State's Attorneys in the several
23 counties, shall investigate suspected criminal violations of
24 this Act and shall commence and try all prosecutions under
25 this Act. Prosecutions under this Act may be commenced by
26 information or indictment. With respect to the commencement
27 and trial of such prosecutions instituted by the
28 Administrator, the Administrator shall have all of the powers
29 and duties vested by law in the state's attorneys with
30 respect to criminal prosecutions generally. A prosecution
31 for any offense under this Act must be commenced within 3
32 years after the commission thereof. Nothing in this Act
33 limits the power of the State to punish any person for any
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1 conduct which constitutes a crime under any other statute.
2 (Source: P.A. 85-551.)
3 (815 ILCS 705/26) (from Ch. 121 1/2, par. 1726)
4 Sec. 26. Private civil actions. Any person who offers,
5 sells, terminates, or fails to renew a franchise in violation
6 of this Act shall be liable to the franchisee who may sue for
7 damages caused thereby. This amendatory Act of 1992 is
8 intended to clarify the existence of a private right of
9 action under existing law with respect to the termination or
10 nonrenewal of a franchise in violation of this Act. In the
11 case of a violation of Section 5, 6, 10, or 11, or 15 of the
12 Act, the franchisee may also sue for rescission.
13 No franchisee may sue for rescission under this Section
14 26 who shall fail, within 30 days from the date of receipt
15 thereof, to accept an offer to return the consideration paid
16 or to repurchase the franchise purchased by such person.
17 Every offer provided for in this Section shall be in writing,
18 shall be delivered to the franchisee or sent by certified
19 mail addressed to the franchisee at such person's last known
20 address, shall offer to return any consideration paid or to
21 repurchase the franchise for a price equal to the full amount
22 paid less any net income received by the franchisee, plus the
23 legal rate of interest thereon, and may require the
24 franchisee to return to the person making such offer all
25 unsold goods, equipment, fixtures, leases and similar items
26 received from such person. Such offer shall continue in
27 force for 30 days from the date on which it was received by
28 the franchisee and shall advise the franchisee of such rights
29 and the period of time limited for acceptance thereof. Any
30 agreement not to accept or refusing or waiving any such offer
31 made during or prior to the expiration of said 30 days shall
32 be void.
33 The term "franchisee" as used in this Section shall
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1 include the personal representative or representatives of the
2 franchisee.
3 Every person who directly or indirectly controls a person
4 liable under this Section 26, every partner in a firm so
5 liable, every principal executive officer or director of a
6 corporation so liable, every person occupying a similar
7 status or performing similar functions, and every employee of
8 a person so liable, who materially aids in the act or
9 transaction constituting the violation, is also liable
10 jointly and severally with and to the same extent as such
11 person, unless said person who otherwise is liable had no
12 knowledge or reasonable basis to have knowledge of the facts,
13 acts or transactions constituting the alleged violation.
14 Every franchisee in whose favor judgment is entered in an
15 action brought under this Section shall be entitled to the
16 costs of the action including, without limitation, reasonable
17 attorney's fees.
18 (Source: P.A. 87-1143.)
19 (815 ILCS 705/13 rep.)
20 (815 ILCS 705/15 rep.)
21 (815 ILCS 705/30 rep.)
22 Section 990. The Franchise Disclosure Act of 1987 is
23 amending by repealing Sections 13, 15, and 30.
24 Section 999. Effective date. This Act takes effect upon
25 becoming law.