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90_HB3463eng
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
HB3463 Engrossed 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 3, 5, 10, 11, 16, and 22 as
6 follows:
7 (815 ILCS 705/3) (from Ch. 121 1/2, par. 1703)
8 Sec. 3. Definitions. As used in this Act:
9 (1) "Franchise" means a contract or agreement, either
10 expressed or implied, whether oral or written, between two or
11 more persons by which:
12 (a) a franchisee is granted the right to engage in
13 the business of offering, selling, or distributing goods
14 or services, under a marketing plan or system prescribed
15 or suggested in substantial part by a franchisor; and
16 (b) the operation of the franchisee's business
17 pursuant to such plan or system is substantially
18 associated with the franchisor's trademark, service mark,
19 trade name, logotype, advertising, or other commercial
20 symbol designating the franchisor or its affiliate; and
21 (c) the person granted the right to engage in such
22 business is required to pay, directly or indirectly, a
23 franchise fee of $500 or more;
24 Provided that this Act shall not apply to any of the
25 following persons, entities or relationships which may
26 involve or acquire a franchise or any interest in a
27 franchise:
28 (i) any franchised business which is operated
29 by the franchisee on the premises of the franchisor
30 or subfranchisor as long as such franchised business
31 is incidental to the business conducted by the
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1 franchisor or subfranchisor at such premises,
2 including, without limitation, leased departments
3 and concessions; or
4 (ii) a fractional franchise. A "fractional
5 franchise" means any relationship in which the
6 person described therein as a franchisee, or any of
7 the current directors or executive officers thereof,
8 has been in the type of business represented by the
9 franchise relationship for more than 2 years and the
10 parties anticipated, or should have anticipated, at
11 the time the agreement establishing the franchise
12 relationship was reached, that the sales arising
13 from the relationship would represent no more than
14 20% of the sales in dollar volume of the franchisee
15 for a period of at least one year after the
16 franchisee begins selling the goods or services
17 involved in the franchise; or
18 (iii) a franchise agreement for the use of a
19 trademark, service mark, trade name, logotype,
20 advertising, or other commercial symbol designating
21 a person who offers on a general basis, for a fee or
22 otherwise, a bona fide service for the evaluation,
23 testing, or certification of goods, commodities, or
24 services.
25 (2) "Franchisee" means a person to whom a franchise is
26 granted and includes, unless stated otherwise in this Act:
27 (a) a subfranchisor with regard to its relationship with a
28 franchisor and (b) a subfranchisee with regard to its
29 relationship with a subfranchisor.
30 (3) "Franchisor" means a person who grants a franchise
31 and includes a subfranchisor with regard to its relationship
32 with a franchisee, unless stated otherwise in this Act.
33 (4) "Subfranchise" means any contract or agreement
34 between a franchisor and a subfranchisor whereby the
HB3463 Engrossed -3- LRB9009391SMdv
1 subfranchisor is granted the right, in consideration of the
2 payment of a franchise fee in whole or in part for such
3 right, to service franchises or to sell or negotiate the sale
4 of franchises. Where used in this Act, unless specifically
5 stated otherwise, "franchise" includes "subfranchise."
6 (5) "Subfranchisor" means a person to whom the right to
7 sell subfranchises is granted.
8 (6) "Order" means a consent, authorization, approval,
9 prohibition, or requirement applicable to a specific case
10 issued by the Attorney General Administrator.
11 (7) "Person" means an individual, a corporation, a
12 partnership, a joint venture, an association, a joint stock
13 company, a trust, or an unincorporated organization.
14 (8) "Rule" means any published regulation or standard of
15 general application issued by the Administrator.
16 (9) "Sale" or "sell" includes every contract or
17 agreement of sale of, contract to sell, or disposition of, a
18 franchise or interest in a franchise for value.
19 (10) "State" means the State of Illinois.
20 (11) "Fraud" and "deceit" are not limited to common law
21 fraud or deceit.
22 (12) "Offer" or "offer to sell" includes every attempt
23 to offer to dispose of, or solicitation of an offer to buy, a
24 franchise, any interest in a franchise or an option to
25 acquire a franchise for value.
26 (13) "Publish" means publicly to issue or circulate by
27 newspaper, mail, radio, or television, or otherwise to
28 disseminate to the public.
29 (14) "Franchise fee" means any fee or charge that a
30 franchisee is required to pay directly or indirectly for the
31 right to enter into a business or sell, resell, or distribute
32 goods, services or franchises under an agreement, including,
33 but not limited to, any such payment for goods or services,
34 provided that the Administrator may by rule define what
HB3463 Engrossed -4- LRB9009391SMdv
1 constitutes an indirect franchise fee, and provided further
2 that the following shall not be considered the payment of a
3 franchise fee: (a) the payment of a reasonable service charge
4 to the issuer of a credit card by an establishment accepting
5 or honoring such credit card; (b) amounts paid to a trading
6 stamp company by a person issuing trading stamps in
7 connection with the retail sale of merchandise or services;
8 (c) the purchase or agreement to purchase goods for which
9 there is an established market at a bona fide wholesale
10 price; (d) the payment for fixtures necessary to operate the
11 business; (e) the payment of rent which reflects payment for
12 the economic value of the property; or (f) the purchase or
13 agreement to purchase goods for which there is an established
14 market at a bona fide retail price subject to a bona fide
15 commission or compensation plan. The Administrator may by
16 rule define what shall constitute an established market.
17 (15) "Disclosure statement" means the document provided
18 for in Section 16 of this Act and all amendments to such
19 document.
20 (16) "Write" or "written" shall include printed,
21 lithographed or any other means of graphic communication.
22 (17) (Blank). "Advertisement" means any prospectus,
23 circular, notice, advertisement, letter of communication,
24 written or by radio or television, which offers any franchise
25 for sale or confirms the sale of any franchise.
26 (18) "Marketing plan or system" means a plan or system
27 relating to some aspect of the conduct of a party to a
28 contract in conducting business, including but not limited to
29 (a) specification of price, or special pricing systems or
30 discount plans, (b) use of particular sales or display
31 equipment or merchandising devices, (c) use of specific sales
32 techniques, (d) use of advertising or promotional materials
33 or cooperation in advertising efforts; provided that an
34 agreement is not a marketing plan or system solely because a
HB3463 Engrossed -5- LRB9009391SMdv
1 manufacturer or distributor of goods reserves the right to
2 occasionally require sale at a special reduced price which is
3 advertised on the container or packaging material in which
4 the product is regularly sold, if the reduced price is
5 absorbed by the manufacturer or distributor.
6 (19) "Administrator" means the Illinois Attorney
7 General.
8 (20) (a) An offer to sell a franchise is made in this
9 State when the offer either originates from this State or
10 is directed by the offeror to this State and received at
11 the place to which it is directed. An offer to sell is
12 accepted in this State when acceptance is communicated to
13 the offeror in this State; and acceptance is communicated
14 to the offeror in this State when the offeree directs it
15 to the offeror in this State reasonably believing the
16 offeror to be in this State and it is received at the
17 place to which it is directed.
18 (b) An offer to sell a franchise is not made in
19 this State merely because the franchisor circulates or
20 there is circulated in this State an advertisement in (i)
21 a bona fide newspaper or other publication of general,
22 regular and paid circulation which has had more than 2/3
23 of its circulation outside this State during the past 12
24 months, or (ii) a radio or television program originating
25 outside this State which is received in this State.
26 (21) "Franchise broker" means any person engaged in the
27 business of representing a franchisor in offering for sale or
28 selling a franchise and is not a franchisor or an officer,
29 director or employee of a franchisor with respect to such
30 franchise. A franchisee shall not be a franchise broker
31 merely because it receives a payment from the franchisor in
32 consideration of the referral of a prospective franchisee to
33 the franchisor, if the franchisee does not otherwise
34 participate in the sale of a franchise to the prospective
HB3463 Engrossed -6- LRB9009391SMdv
1 franchisee. A franchisee shall not be deemed to participate
2 in a sale merely because he responds to an inquiry from a
3 prospective franchisee.
4 (22) "Salesperson" means any person employed by or
5 representing a franchise broker in effecting or attempting to
6 effect the offer or sale of a franchise.
7 (Source: P.A. 87-1143.)
8 (815 ILCS 705/5) (from Ch. 121 1/2, par. 1705)
9 Sec. 5. Prohibited practices. (1) Sale of unregistered
10 franchise unlawful. It is unlawful for any person to offer or
11 sell any franchise required to be registered under this Act
12 unless the franchise has been registered under this Act or is
13 exempt under this Act.
14 (2) Failure to deliver a disclosure statement unlawful.
15 It is unlawful for any person to offer or sell any franchise
16 which is required to be registered under this Act without
17 first providing to the prospective franchisee at least 14 10
18 business days prior to the execution by the prospective
19 franchisee of any binding franchise or other agreement, or at
20 least 14 10 business days prior to the receipt by such person
21 of any consideration, whichever occurs first, a copy of a
22 disclosure statement meeting the requirements of this Act and
23 registered by the Administrator, together with a copy of all
24 proposed agreements relating to the sale of the franchise.
25 For the purposes of this Act, delivery of a disclosure
26 statement to a general partner of a partnership shall
27 constitute delivery to the partnership and its partners and
28 delivery of a disclosure statement to a principal officer of
29 a corporation shall constitute delivery to the corporation
30 and its shareholders.
31 (3) Sale of franchise by unregistered franchise broker
32 unlawful. It is unlawful for any franchise required to be
33 registered under this Act to be offered for sale or sold in
HB3463 Engrossed -7- LRB9009391SMdv
1 this State by a franchise broker subject to this Act who is
2 not first registered under this Act unless exempt from
3 registration.
4 (4) Filing of untrue report unlawful. It is unlawful for
5 any person to make or cause to be made any untrue statement
6 of a material fact in any application, notice, or report
7 filed with the Administrator, or to omit to state in any
8 application, notice, or report any material fact, or to fail
9 to notify the Administrator of any material change in such
10 application, notice, or report, as required by this Act and
11 the rules and regulations promulgated thereunder.
12 (Source: P.A. 85-551.)
13 (815 ILCS 705/10) (from Ch. 121 1/2, par. 1710)
14 Sec. 10. Registration and Annual Report. No franchisor
15 may sell or offer to sell a franchise in this State if (1)
16 the franchisee is domiciled in this State or (2) the offer of
17 the franchise is made or accepted in this State and the
18 franchise business is or will be located in this State,
19 unless the franchisor has registered the franchise with the
20 Administrator by filing such form of notification application
21 and disclosure statement as required under Section 16 as the
22 Administrator may by rule or order require. The Administrator
23 may require the filing with the Administrator of such other
24 information or documents as are necessary or appropriate in
25 the public interest or for the protection of prospective
26 franchisees and may, but need not, require that such
27 additional information or documents be furnished to
28 prospective franchisees as part of the disclosure statement.
29 The registration of a franchise shall become effective on
30 the 21st 20th business day after the date of the filing of
31 the required materials, unless prior thereto one of the
32 following events has taken place: (1) the Administrator has
33 denied registration under subdivision (a)(3) of Section 22
HB3463 Engrossed -8- LRB9009391SMdv
1 entered an order suspending, terminating, prohibiting or
2 denying the registration of the franchise or franchise
3 broker; or (2) the Administrator has notified the franchisor
4 or its representative that the materials filed do not meet
5 the requirements of this Act, and the reasons therefor; or
6 (3) the Administrator in his discretion upon written request
7 of the franchisor, has granted acceleration so as to provide
8 for 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
HB3463 Engrossed -9- LRB9009391SMdv
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
HB3463 Engrossed -10- LRB9009391SMdv
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
HB3463 Engrossed -11- LRB9009391SMdv
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
3 or 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) that the
13 disclosure statement filed in conjunction with an initial
14 registration under Section 10 is materially deficient. A
15 disclosure statement is "materially deficient" if it fails to
16 comply with the requirements of the Uniform Franchise
17 Offering Circular Guidelines referred to in Section 16 or any
18 amendment thereto includes any false or misleading statement
19 of a material fact or omits to state any material fact
20 required to be stated therein or necessary to make the
21 statements therein not misleading; or (4) that the sale of
22 the franchise would constitute a misrepresentation, deceit or
23 fraud upon prospective franchisees; or (5) that any person in
24 this State is engaging in or about to engage in false,
25 fraudulent or deceptive practices or any device, scheme, or
26 artifice to defraud in connection with the offer or sale of
27 the franchise; or (6) that any person identified in the
28 disclosure statement or any person engaged in the offer or
29 sale of the franchise in this State has been convicted of an
30 offense, is subject to an order or civil judgment or is a
31 defendant in a proceeding required to be described in the
32 disclosure statement and the involvement of such person
33 creates an unreasonable risk to prospective franchisees; or
34 (7) (blank) that anything prohibited by this Act has been
HB3463 Engrossed -13- LRB9009391SMdv
1 used in connection with the offer or sale of the franchise;
2 or (8) (blank) that the financial condition of the franchisor
3 affects or would affect the ability of the franchisor to
4 fulfill obligations under the franchise or other agreement
5 and the franchisor is unable or unwilling to comply with a
6 rule or order of the Administrator issued under Section 15 of
7 this Act; or (9) that the franchisor's enterprise or method
8 of business includes or would include activities which are
9 illegal where performed; or (10) (blank) that there are
10 conditions affecting the soundness of the franchise so that
11 the sale thereof would be fraudulent, inequitable or would
12 work or tend to work a fraud upon prospective franchisees; or
13 (11) (blank) that an applicant has failed to diligently
14 process its registration application with the Administrator.
15 In no case shall the Administrator, or any person
16 designated by him, in the administration of this Act, incur
17 any official or personal liability by issuing an order or
18 other proceeding or by suspending, denying, prohibiting or
19 terminating the registration of a franchise broker or
20 salesperson, or by denying, suspending, terminating or
21 prohibiting the registration of franchises, or prohibiting
22 the sale of franchises, or by suspending or prohibiting any
23 person from acting as a franchise broker or salesperson.
24 The Administrator may exercise any of the powers
25 specified in Section 31 of this Act.
26 (b) The Administrator, with such assistance as he may
27 from time to time request of the state's attorneys in the
28 several counties, may institute proceedings in the circuit
29 court to prevent and restrain violations of this Act or of
30 any rule or order prescribed or issued under this Act. In
31 such a proceeding, the court shall determine whether a
32 violation has been committed, and shall enter such judgment
33 or decree as it considers necessary to remove the effects of
34 any violation and to prevent such violation from continuing
HB3463 Engrossed -14- LRB9009391SMdv
1 or from being renewed in the future. The court, in its
2 discretion, may exercise all powers necessary for this
3 purpose, including, but not limited to, injunction,
4 revocation, forfeiture or suspension of the charter,
5 franchise, certificate of authority or privileges of any
6 corporation, association, limited partnership or other
7 business organization operating under the laws of this State,
8 dissolution of domestic corporations or associations,
9 suspension or termination of the right of foreign
10 corporations or associations to do business in this State, or
11 restitution or payment of damages by a franchisor to persons
12 injured by violations of this Act, including without
13 limitation an award of reasonable attorneys fees and costs.
14 (Source: P.A. 85-551.)
15 (815 ILCS 705/30 rep.)
16 Section 990. The Franchise Disclosure Act of 1987 is
17 amending by repealing Section 30.
18 Section 999. Effective date. This Act takes effect upon
19 becoming law.