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90_HB3463ham001
LRB9009391SMdvam01
1 AMENDMENT TO HOUSE BILL 3463
2 AMENDMENT NO. . Amend House Bill 3463 by replacing
3 the title with the following:
4 "AN ACT concerning franchise disclosure laws."; and
5 by replacing everything after the enacting clause with the
6 following:
7 "Section 5. The Franchise Disclosure Act of 1987 is
8 amended by changing Sections 3, 5, 10, 11, 16, and 22 as
9 follows:
10 (815 ILCS 705/3) (from Ch. 121 1/2, par. 1703)
11 Sec. 3. Definitions. As used in this Act:
12 (1) "Franchise" means a contract or agreement, either
13 expressed or implied, whether oral or written, between two or
14 more persons by which:
15 (a) a franchisee is granted the right to engage in
16 the business of offering, selling, or distributing goods
17 or services, under a marketing plan or system prescribed
18 or suggested in substantial part by a franchisor; and
19 (b) the operation of the franchisee's business
20 pursuant to such plan or system is substantially
21 associated with the franchisor's trademark, service mark,
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1 trade name, logotype, advertising, or other commercial
2 symbol designating the franchisor or its affiliate; and
3 (c) the person granted the right to engage in such
4 business is required to pay, directly or indirectly, a
5 franchise fee of $500 or more;
6 Provided that this Act shall not apply to any of the
7 following persons, entities or relationships which may
8 involve or acquire a franchise or any interest in a
9 franchise:
10 (i) any franchised business which is operated
11 by the franchisee on the premises of the franchisor
12 or subfranchisor as long as such franchised business
13 is incidental to the business conducted by the
14 franchisor or subfranchisor at such premises,
15 including, without limitation, leased departments
16 and concessions; or
17 (ii) a fractional franchise. A "fractional
18 franchise" means any relationship in which the
19 person described therein as a franchisee, or any of
20 the current directors or executive officers thereof,
21 has been in the type of business represented by the
22 franchise relationship for more than 2 years and the
23 parties anticipated, or should have anticipated, at
24 the time the agreement establishing the franchise
25 relationship was reached, that the sales arising
26 from the relationship would represent no more than
27 20% of the sales in dollar volume of the franchisee
28 for a period of at least one year after the
29 franchisee begins selling the goods or services
30 involved in the franchise; or
31 (iii) a franchise agreement for the use of a
32 trademark, service mark, trade name, logotype,
33 advertising, or other commercial symbol designating
34 a person who offers on a general basis, for a fee or
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1 otherwise, a bona fide service for the evaluation,
2 testing, or certification of goods, commodities, or
3 services.
4 (2) "Franchisee" means a person to whom a franchise is
5 granted and includes, unless stated otherwise in this Act:
6 (a) a subfranchisor with regard to its relationship with a
7 franchisor and (b) a subfranchisee with regard to its
8 relationship with a subfranchisor.
9 (3) "Franchisor" means a person who grants a franchise
10 and includes a subfranchisor with regard to its relationship
11 with a franchisee, unless stated otherwise in this Act.
12 (4) "Subfranchise" means any contract or agreement
13 between a franchisor and a subfranchisor whereby the
14 subfranchisor is granted the right, in consideration of the
15 payment of a franchise fee in whole or in part for such
16 right, to service franchises or to sell or negotiate the sale
17 of franchises. Where used in this Act, unless specifically
18 stated otherwise, "franchise" includes "subfranchise."
19 (5) "Subfranchisor" means a person to whom the right to
20 sell subfranchises is granted.
21 (6) "Order" means a consent, authorization, approval,
22 prohibition, or requirement applicable to a specific case
23 issued by the Attorney General Administrator.
24 (7) "Person" means an individual, a corporation, a
25 partnership, a joint venture, an association, a joint stock
26 company, a trust, or an unincorporated organization.
27 (8) "Rule" means any published regulation or standard of
28 general application issued by the Administrator.
29 (9) "Sale" or "sell" includes every contract or
30 agreement of sale of, contract to sell, or disposition of, a
31 franchise or interest in a franchise for value.
32 (10) "State" means the State of Illinois.
33 (11) "Fraud" and "deceit" are not limited to common law
34 fraud or deceit.
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1 (12) "Offer" or "offer to sell" includes every attempt
2 to offer to dispose of, or solicitation of an offer to buy, a
3 franchise, any interest in a franchise or an option to
4 acquire a franchise for value.
5 (13) "Publish" means publicly to issue or circulate by
6 newspaper, mail, radio, or television, or otherwise to
7 disseminate to the public.
8 (14) "Franchise fee" means any fee or charge that a
9 franchisee is required to pay directly or indirectly for the
10 right to enter into a business or sell, resell, or distribute
11 goods, services or franchises under an agreement, including,
12 but not limited to, any such payment for goods or services,
13 provided that the Administrator may by rule define what
14 constitutes an indirect franchise fee, and provided further
15 that the following shall not be considered the payment of a
16 franchise fee: (a) the payment of a reasonable service charge
17 to the issuer of a credit card by an establishment accepting
18 or honoring such credit card; (b) amounts paid to a trading
19 stamp company by a person issuing trading stamps in
20 connection with the retail sale of merchandise or services;
21 (c) the purchase or agreement to purchase goods for which
22 there is an established market at a bona fide wholesale
23 price; (d) the payment for fixtures necessary to operate the
24 business; (e) the payment of rent which reflects payment for
25 the economic value of the property; or (f) the purchase or
26 agreement to purchase goods for which there is an established
27 market at a bona fide retail price subject to a bona fide
28 commission or compensation plan. The Administrator may by
29 rule define what shall constitute an established market.
30 (15) "Disclosure statement" means the document provided
31 for in Section 16 of this Act and all amendments to such
32 document.
33 (16) "Write" or "written" shall include printed,
34 lithographed or any other means of graphic communication.
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1 (17) (Blank). "Advertisement" means any prospectus,
2 circular, notice, advertisement, letter of communication,
3 written or by radio or television, which offers any franchise
4 for sale or confirms the sale of any franchise.
5 (18) "Marketing plan or system" means a plan or system
6 relating to some aspect of the conduct of a party to a
7 contract in conducting business, including but not limited to
8 (a) specification of price, or special pricing systems or
9 discount plans, (b) use of particular sales or display
10 equipment or merchandising devices, (c) use of specific sales
11 techniques, (d) use of advertising or promotional materials
12 or cooperation in advertising efforts; provided that an
13 agreement is not a marketing plan or system solely because a
14 manufacturer or distributor of goods reserves the right to
15 occasionally require sale at a special reduced price which is
16 advertised on the container or packaging material in which
17 the product is regularly sold, if the reduced price is
18 absorbed by the manufacturer or distributor.
19 (19) "Administrator" means the Illinois Attorney
20 General.
21 (20) (a) An offer to sell a franchise is made in this
22 State when the offer either originates from this State or
23 is directed by the offeror to this State and received at
24 the place to which it is directed. An offer to sell is
25 accepted in this State when acceptance is communicated to
26 the offeror in this State; and acceptance is communicated
27 to the offeror in this State when the offeree directs it
28 to the offeror in this State reasonably believing the
29 offeror to be in this State and it is received at the
30 place to which it is directed.
31 (b) An offer to sell a franchise is not made in
32 this State merely because the franchisor circulates or
33 there is circulated in this State an advertisement in (i)
34 a bona fide newspaper or other publication of general,
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1 regular and paid circulation which has had more than 2/3
2 of its circulation outside this State during the past 12
3 months, or (ii) a radio or television program originating
4 outside this State which is received in this State.
5 (21) "Franchise broker" means any person engaged in the
6 business of representing a franchisor in offering for sale or
7 selling a franchise and is not a franchisor or an officer,
8 director or employee of a franchisor with respect to such
9 franchise. A franchisee shall not be a franchise broker
10 merely because it receives a payment from the franchisor in
11 consideration of the referral of a prospective franchisee to
12 the franchisor, if the franchisee does not otherwise
13 participate in the sale of a franchise to the prospective
14 franchisee. A franchisee shall not be deemed to participate
15 in a sale merely because he responds to an inquiry from a
16 prospective franchisee.
17 (22) "Salesperson" means any person employed by or
18 representing a franchise broker in effecting or attempting to
19 effect the offer or sale of a franchise.
20 (Source: P.A. 87-1143.)
21 (815 ILCS 705/5) (from Ch. 121 1/2, par. 1705)
22 Sec. 5. Prohibited practices. (1) Sale of unregistered
23 franchise unlawful. It is unlawful for any person to offer or
24 sell any franchise required to be registered under this Act
25 unless the franchise has been registered under this Act or is
26 exempt under this Act.
27 (2) Failure to deliver a disclosure statement unlawful.
28 It is unlawful for any person to offer or sell any franchise
29 which is required to be registered under this Act without
30 first providing to the prospective franchisee at least 14 10
31 business days prior to the execution by the prospective
32 franchisee of any binding franchise or other agreement, or at
33 least 14 10 business days prior to the receipt by such person
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1 of any consideration, whichever occurs first, a copy of a
2 disclosure statement meeting the requirements of this Act and
3 registered by the Administrator, together with a copy of all
4 proposed agreements relating to the sale of the franchise.
5 For the purposes of this Act, delivery of a disclosure
6 statement to a general partner of a partnership shall
7 constitute delivery to the partnership and its partners and
8 delivery of a disclosure statement to a principal officer of
9 a corporation shall constitute delivery to the corporation
10 and its shareholders.
11 (3) Sale of franchise by unregistered franchise broker
12 unlawful. It is unlawful for any franchise required to be
13 registered under this Act to be offered for sale or sold in
14 this State by a franchise broker subject to this Act who is
15 not first registered under this Act unless exempt from
16 registration.
17 (4) Filing of untrue report unlawful. It is unlawful for
18 any person to make or cause to be made any untrue statement
19 of a material fact in any application, notice, or report
20 filed with the Administrator, or to omit to state in any
21 application, notice, or report any material fact, or to fail
22 to notify the Administrator of any material change in such
23 application, notice, or report, as required by this Act and
24 the rules and regulations promulgated thereunder.
25 (Source: P.A. 85-551.)
26 (815 ILCS 705/10) (from Ch. 121 1/2, par. 1710)
27 Sec. 10. Registration and Annual Report. No franchisor
28 may sell or offer to sell a franchise in this State if (1)
29 the franchisee is domiciled in this State or (2) the offer of
30 the franchise is made or accepted in this State and the
31 franchise business is or will be located in this State,
32 unless the franchisor has registered the franchise with the
33 Administrator by filing such form of notification application
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1 and disclosure statement as required under Section 16 as the
2 Administrator may by rule or order require. The Administrator
3 may require the filing with the Administrator of such other
4 information or documents as are necessary or appropriate in
5 the public interest or for the protection of prospective
6 franchisees and may, but need not, require that such
7 additional information or documents be furnished to
8 prospective franchisees as part of the disclosure statement.
9 The registration of a franchise shall become effective on
10 the 21st 20th business day after the date of the filing of
11 the required materials, unless prior thereto one of the
12 following events has taken place: (1) the Administrator has
13 denied registration under subdivision (a)(3) of Section 22
14 entered an order suspending, terminating, prohibiting or
15 denying the registration of the franchise or franchise
16 broker; or (2) the Administrator has notified the franchisor
17 or its representative that the materials filed do not meet
18 the requirements of this Act, and the reasons therefor; or
19 (3) the Administrator in his discretion upon written request
20 of the franchisor, has granted acceleration so as to provide
21 for an effective date prior to the 20th business day.
22 Annually, but not later than one business day 30 days
23 before the anniversary date of the registration, the
24 franchisor shall file a report in a form prescribed by rule
25 of the Administrator. The report shall contain such documents
26 and information as the Administrator may by rule or order
27 require including, without limitation, the disclosure
28 statement updated as of a date within 120 days of the
29 anniversary date of the registration. The Administrator may,
30 in his discretion, review such report and disclosure
31 statement and notify the franchisor that additional
32 information or other modification of the disclosure statement
33 be included or deleted from the report and disclosure
34 statement, or issue an order under Section 23 of this Act, as
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1 may be necessary or appropriate in the public interest, or
2 for the protection of prospective franchisees. The notice
3 issued by the Administrator may, at the Administrator's
4 discretion, suspend the right of the franchisor to offer to
5 sell franchises until the specified deficiencies are cured.
6 From the date the annual report is filed until the
7 anniversary date of the registration, the franchisor may
8 continue to use the previously registered disclosure
9 statement or the disclosure statement that is filed with the
10 annual report provided that, if the disclosure statement
11 filed with the annual report contains any material change in
12 any matter required to be disclosed, the franchisor shall
13 deliver the disclosure statement in accordance with the
14 requirements of subsection (2) of Section 5. The sale of a
15 franchise after the filing of the updated disclosure
16 statement and before the franchisor's receipt of a notice
17 from the Administrator requiring additional information or
18 other modification of the updated disclosure statement shall
19 be deemed the sale of a registered franchise, provided that
20 the updated disclosure statement contains all required
21 exhibits and the franchisor complies with the requirements of
22 subsection (2) of Section 5 with respect to the updated
23 disclosure statement. The fact that the franchise is
24 considered to be registered is not a finding that the updated
25 disclosure statement complies with the standard of disclosure
26 required by this Act.
27 (Source: P.A. 87-1143.)
28 (815 ILCS 705/11) (from Ch. 121 1/2, par. 1711)
29 Sec. 11. Amendments. Within 90 days of Upon the
30 occurrence of any material change in any facts required to be
31 disclosed, a franchisor whose franchise is registered under
32 this Act shall amend its disclosure statement and shall
33 deliver the amended disclosure statement in accordance with
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1 the requirements of subsection (2) of Section 5 and Section
2 16 of this Act to any prospective franchisee, including
3 prospective franchisees to whom a disclosure statement was
4 previously delivered if the material change relates to or
5 affects the franchisor or the franchise offered to such
6 prospective franchisees. The Administrator may by rule define
7 what shall constitute a material change. The amended
8 disclosure statement shall be filed with the Administrator
9 who may require additional information or other modification
10 of the amended disclosure statement under Section 16 of this
11 Act or issue an order under Section 23 of this Act. The
12 notice issued by the Administrator may, at the
13 Administrator's discretion, suspend the right of the
14 franchisor to offer and sell franchises until the specified
15 deficiencies are cured. An amendment shall not be required if
16 the terms of the franchise agreement merely reflect changes
17 from the franchisor's registered franchise made pursuant to
18 negotiations between the franchisee and the franchisor. The
19 sale of a franchise after the filing of an amended disclosure
20 statement and before the franchisor's receipt of a notice
21 from the Administrator requiring additional information or
22 other modification of the amended disclosure statement shall
23 be deemed the sale of a registered franchise, provided that
24 the amended disclosure statement contains all required
25 exhibits and the franchisor complies with the requirements of
26 subsection (2) of Section 5 with respect to the amended
27 disclosure statement.
28 The fact that the franchise is considered to be
29 registered is not a finding that the amended disclosure
30 statement complies with the standard of disclosure required
31 by this Act.
32 (Source: P.A. 87-1143.)
33 (815 ILCS 705/16) (from Ch. 121 1/2, par. 1716)
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1 Sec. 16. Form and contents of disclosure statements. The
2 disclosure statement required under this Act shall be
3 prepared in accordance with the Uniform Franchise Offering
4 Circular Guidelines as adopted and amended by the North
5 American Securities Administrators Association, Incorporated.
6 The Administrator shall by rule prescribe the form and
7 content of disclosure statements. The Administrator may by
8 rule or order require (a) that specified portions of the
9 disclosure statement be emphasized by italics, bold face type
10 or other means, and (b) that earnings or sales projections or
11 estimations be qualified by appropriate legend. No portion
12 of the disclosure statement shall be underscored, italicized
13 or printed in larger or bolder type than the balance of the
14 statement unless the Administrator requires or permits it.
15 The Administrator, giving due regard to the desirability
16 of avoiding the burden of preparing duplicate disclosure
17 statements and similar documents, may by rule or order deem
18 to be in full or partial compliance with this Act any
19 disclosure statement which complies with the requirements of
20 any Federal law or administrative rule or with the law of any
21 other state, or is approved by an association of regulatory
22 agencies, which law, rule or approval requires substantially
23 the same disclosures to prospective franchisees as are
24 required under this Act.
25 All statements in the disclosure statement shall be free
26 from any false or misleading statement of a material fact,
27 shall not omit to state any material fact required to be
28 stated or necessary to make the statements not misleading,
29 and shall be accurate and complete as of the effective date
30 thereof.
31 When the disclosure statement is for a franchise offering
32 by a subfranchisor, the disclosure statement shall include
33 the information required by this Act with respect to the
34 subfranchisor instead of the franchisor; however, if the
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1 franchisor from whom the subfranchisor acquired the right to
2 grant franchises is required to provide the franchisee with
3 goods, training programs, advertising, promotion,
4 supervision, assistance in site selections or other services,
5 the Administrator may in his discretion require the
6 disclosure statement for such franchise offering to include
7 part or all of the information required by this Act with
8 respect to both the subfranchisor and the franchisor from
9 whom the subfranchisor acquired the right to grant
10 franchises.
11 (Source: P.A. 85-551.)
12 (815 ILCS 705/22) (from Ch. 121 1/2, par. 1722)
13 Sec. 22. Enforcement.
14 (a) The Administrator may suspend, terminate, prohibit
15 or deny the sale of any franchise or registration of any
16 franchise, or franchise broker or salesperson if it appears
17 to him that: (1) there has been a failure to comply with any
18 of the provisions of this Act or the rules or orders of the
19 Administrator pertaining thereto; or (2) that the disclosure
20 statement or any amendment thereto includes any false or
21 misleading statement of a material fact or omits to state any
22 material fact required to be stated therein or necessary to
23 make the statements therein not misleading is incomplete or
24 inaccurate in any material respect; or (3) that the
25 disclosure statement filed in conjunction with an initial
26 registration under Section 10 is materially deficient. A
27 disclosure statement is "materially deficient" if it fails to
28 comply with the requirements of the Uniform Franchise
29 Offering Circular Guidelines referred to in Section 16 or any
30 amendment thereto includes any false or misleading statement
31 of a material fact or omits to state any material fact
32 required to be stated therein or necessary to make the
33 statements therein not misleading; or (4) that the sale of
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1 the franchise would constitute a misrepresentation, deceit or
2 fraud upon prospective franchisees; or (5) that any person in
3 this State is engaging in or about to engage in false,
4 fraudulent or deceptive practices or any device, scheme, or
5 artifice to defraud in connection with the offer or sale of
6 the franchise; or (6) that any person identified in the
7 disclosure statement or any person engaged in the offer or
8 sale of the franchise in this State has been convicted of an
9 offense, is subject to an order or civil judgment or is a
10 defendant in a proceeding required to be described in the
11 disclosure statement and the involvement of such person
12 creates an unreasonable risk to prospective franchisees; or
13 (7) (blank) that anything prohibited by this Act has been
14 used in connection with the offer or sale of the franchise;
15 or (8) (blank) that the financial condition of the franchisor
16 affects or would affect the ability of the franchisor to
17 fulfill obligations under the franchise or other agreement
18 and the franchisor is unable or unwilling to comply with a
19 rule or order of the Administrator issued under Section 15 of
20 this Act; or (9) that the franchisor's enterprise or method
21 of business includes or would include activities which are
22 illegal where performed; or (10) (blank) that there are
23 conditions affecting the soundness of the franchise so that
24 the sale thereof would be fraudulent, inequitable or would
25 work or tend to work a fraud upon prospective franchisees; or
26 (11) (blank) that an applicant has failed to diligently
27 process its registration application with the Administrator.
28 In no case shall the Administrator, or any person
29 designated by him, in the administration of this Act, incur
30 any official or personal liability by issuing an order or
31 other proceeding or by suspending, denying, prohibiting or
32 terminating the registration of a franchise broker or
33 salesperson, or by denying, suspending, terminating or
34 prohibiting the registration of franchises, or prohibiting
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1 the sale of franchises, or by suspending or prohibiting any
2 person from acting as a franchise broker or salesperson.
3 The Administrator may exercise any of the powers
4 specified in Section 31 of this Act.
5 (b) The Administrator, with such assistance as he may
6 from time to time request of the state's attorneys in the
7 several counties, may institute proceedings in the circuit
8 court to prevent and restrain violations of this Act or of
9 any rule or order prescribed or issued under this Act. In
10 such a proceeding, the court shall determine whether a
11 violation has been committed, and shall enter such judgment
12 or decree as it considers necessary to remove the effects of
13 any violation and to prevent such violation from continuing
14 or from being renewed in the future. The court, in its
15 discretion, may exercise all powers necessary for this
16 purpose, including, but not limited to, injunction,
17 revocation, forfeiture or suspension of the charter,
18 franchise, certificate of authority or privileges of any
19 corporation, association, limited partnership or other
20 business organization operating under the laws of this State,
21 dissolution of domestic corporations or associations,
22 suspension or termination of the right of foreign
23 corporations or associations to do business in this State, or
24 restitution or payment of damages by a franchisor to persons
25 injured by violations of this Act, including without
26 limitation an award of reasonable attorneys fees and costs.
27 (Source: P.A. 85-551.)
28 (815 ILCS 705/30 rep.)
29 Section 990. The Franchise Disclosure Act of 1987 is
30 amending by repealing Section 30.
31 Section 999. Effective date. This Act takes effect upon
32 becoming law.".