Public Act 90-0642 of the 90th General Assembly
Public Act 90-0642
HB3463 Enrolled LRB9009391SMdv
AN ACT concerning franchise disclosure laws.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Franchise Disclosure Act of 1987 is
amended by changing Sections 3, 5, 10, 11, 16, and 22 as
follows:
(815 ILCS 705/3) (from Ch. 121 1/2, par. 1703)
Sec. 3. Definitions. As used in this Act:
(1) "Franchise" means a contract or agreement, either
expressed or implied, whether oral or written, between two or
more persons by which:
(a) a franchisee is granted the right to engage in
the business of offering, selling, or distributing goods
or services, under a marketing plan or system prescribed
or suggested in substantial part by a franchisor; and
(b) the operation of the franchisee's business
pursuant to such plan or system is substantially
associated with the franchisor's trademark, service mark,
trade name, logotype, advertising, or other commercial
symbol designating the franchisor or its affiliate; and
(c) the person granted the right to engage in such
business is required to pay, directly or indirectly, a
franchise fee of $500 or more;
Provided that this Act shall not apply to any of the
following persons, entities or relationships which may
involve or acquire a franchise or any interest in a
franchise:
(i) any franchised business which is operated
by the franchisee on the premises of the franchisor
or subfranchisor as long as such franchised business
is incidental to the business conducted by the
franchisor or subfranchisor at such premises,
including, without limitation, leased departments
and concessions; or
(ii) a fractional franchise. A "fractional
franchise" means any relationship in which the
person described therein as a franchisee, or any of
the current directors or executive officers thereof,
has been in the type of business represented by the
franchise relationship for more than 2 years and the
parties anticipated, or should have anticipated, at
the time the agreement establishing the franchise
relationship was reached, that the sales arising
from the relationship would represent no more than
20% of the sales in dollar volume of the franchisee
for a period of at least one year after the
franchisee begins selling the goods or services
involved in the franchise; or
(iii) a franchise agreement for the use of a
trademark, service mark, trade name, logotype,
advertising, or other commercial symbol designating
a person who offers on a general basis, for a fee or
otherwise, a bona fide service for the evaluation,
testing, or certification of goods, commodities, or
services.
(2) "Franchisee" means a person to whom a franchise is
granted and includes, unless stated otherwise in this Act:
(a) a subfranchisor with regard to its relationship with a
franchisor and (b) a subfranchisee with regard to its
relationship with a subfranchisor.
(3) "Franchisor" means a person who grants a franchise
and includes a subfranchisor with regard to its relationship
with a franchisee, unless stated otherwise in this Act.
(4) "Subfranchise" means any contract or agreement
between a franchisor and a subfranchisor whereby the
subfranchisor is granted the right, in consideration of the
payment of a franchise fee in whole or in part for such
right, to service franchises or to sell or negotiate the sale
of franchises. Where used in this Act, unless specifically
stated otherwise, "franchise" includes "subfranchise."
(5) "Subfranchisor" means a person to whom the right to
sell subfranchises is granted.
(6) "Order" means a consent, authorization, approval,
prohibition, or requirement applicable to a specific case
issued by the Attorney General Administrator.
(7) "Person" means an individual, a corporation, a
partnership, a joint venture, an association, a joint stock
company, a trust, or an unincorporated organization.
(8) "Rule" means any published regulation or standard of
general application issued by the Administrator.
(9) "Sale" or "sell" includes every contract or
agreement of sale of, contract to sell, or disposition of, a
franchise or interest in a franchise for value.
(10) "State" means the State of Illinois.
(11) "Fraud" and "deceit" are not limited to common law
fraud or deceit.
(12) "Offer" or "offer to sell" includes every attempt
to offer to dispose of, or solicitation of an offer to buy, a
franchise, any interest in a franchise or an option to
acquire a franchise for value.
(13) "Publish" means publicly to issue or circulate by
newspaper, mail, radio, or television, or otherwise to
disseminate to the public.
(14) "Franchise fee" means any fee or charge that a
franchisee is required to pay directly or indirectly for the
right to enter into a business or sell, resell, or distribute
goods, services or franchises under an agreement, including,
but not limited to, any such payment for goods or services,
provided that the Administrator may by rule define what
constitutes an indirect franchise fee, and provided further
that the following shall not be considered the payment of a
franchise fee: (a) the payment of a reasonable service charge
to the issuer of a credit card by an establishment accepting
or honoring such credit card; (b) amounts paid to a trading
stamp company by a person issuing trading stamps in
connection with the retail sale of merchandise or services;
(c) the purchase or agreement to purchase goods for which
there is an established market at a bona fide wholesale
price; (d) the payment for fixtures necessary to operate the
business; (e) the payment of rent which reflects payment for
the economic value of the property; or (f) the purchase or
agreement to purchase goods for which there is an established
market at a bona fide retail price subject to a bona fide
commission or compensation plan. The Administrator may by
rule define what shall constitute an established market.
(15) "Disclosure statement" means the document provided
for in Section 16 of this Act and all amendments to such
document.
(16) "Write" or "written" shall include printed,
lithographed or any other means of graphic communication.
(17) (Blank). "Advertisement" means any prospectus,
circular, notice, advertisement, letter of communication,
written or by radio or television, which offers any franchise
for sale or confirms the sale of any franchise.
(18) "Marketing plan or system" means a plan or system
relating to some aspect of the conduct of a party to a
contract in conducting business, including but not limited to
(a) specification of price, or special pricing systems or
discount plans, (b) use of particular sales or display
equipment or merchandising devices, (c) use of specific sales
techniques, (d) use of advertising or promotional materials
or cooperation in advertising efforts; provided that an
agreement is not a marketing plan or system solely because a
manufacturer or distributor of goods reserves the right to
occasionally require sale at a special reduced price which is
advertised on the container or packaging material in which
the product is regularly sold, if the reduced price is
absorbed by the manufacturer or distributor.
(19) "Administrator" means the Illinois Attorney
General.
(20) (a) An offer to sell a franchise is made in this
State when the offer either originates from this State or
is directed by the offeror to this State and received at
the place to which it is directed. An offer to sell is
accepted in this State when acceptance is communicated to
the offeror in this State; and acceptance is communicated
to the offeror in this State when the offeree directs it
to the offeror in this State reasonably believing the
offeror to be in this State and it is received at the
place to which it is directed.
(b) An offer to sell a franchise is not made in
this State merely because the franchisor circulates or
there is circulated in this State an advertisement in (i)
a bona fide newspaper or other publication of general,
regular and paid circulation which has had more than 2/3
of its circulation outside this State during the past 12
months, or (ii) a radio or television program originating
outside this State which is received in this State.
(21) "Franchise broker" means any person engaged in the
business of representing a franchisor in offering for sale or
selling a franchise and is not a franchisor or an officer,
director or employee of a franchisor with respect to such
franchise. A franchisee shall not be a franchise broker
merely because it receives a payment from the franchisor in
consideration of the referral of a prospective franchisee to
the franchisor, if the franchisee does not otherwise
participate in the sale of a franchise to the prospective
franchisee. A franchisee shall not be deemed to participate
in a sale merely because he responds to an inquiry from a
prospective franchisee.
(22) "Salesperson" means any person employed by or
representing a franchise broker in effecting or attempting to
effect the offer or sale of a franchise.
(Source: P.A. 87-1143.)
(815 ILCS 705/5) (from Ch. 121 1/2, par. 1705)
Sec. 5. Prohibited practices. (1) Sale of unregistered
franchise unlawful. It is unlawful for any person to offer or
sell any franchise required to be registered under this Act
unless the franchise has been registered under this Act or is
exempt under this Act.
(2) Failure to deliver a disclosure statement unlawful.
It is unlawful for any person to offer or sell any franchise
which is required to be registered under this Act without
first providing to the prospective franchisee at least 14 10
business days prior to the execution by the prospective
franchisee of any binding franchise or other agreement, or at
least 14 10 business days prior to the receipt by such person
of any consideration, whichever occurs first, a copy of a
disclosure statement meeting the requirements of this Act and
registered by the Administrator, together with a copy of all
proposed agreements relating to the sale of the franchise.
For the purposes of this Act, delivery of a disclosure
statement to a general partner of a partnership shall
constitute delivery to the partnership and its partners and
delivery of a disclosure statement to a principal officer of
a corporation shall constitute delivery to the corporation
and its shareholders.
(3) Sale of franchise by unregistered franchise broker
unlawful. It is unlawful for any franchise required to be
registered under this Act to be offered for sale or sold in
this State by a franchise broker subject to this Act who is
not first registered under this Act unless exempt from
registration.
(4) Filing of untrue report unlawful. It is unlawful for
any person to make or cause to be made any untrue statement
of a material fact in any application, notice, or report
filed with the Administrator, or to omit to state in any
application, notice, or report any material fact, or to fail
to notify the Administrator of any material change in such
application, notice, or report, as required by this Act and
the rules and regulations promulgated thereunder.
(Source: P.A. 85-551.)
(815 ILCS 705/10) (from Ch. 121 1/2, par. 1710)
Sec. 10. Registration and Annual Report. No franchisor
may sell or offer to sell a franchise in this State if (1)
the franchisee is domiciled in this State or (2) the offer of
the franchise is made or accepted in this State and the
franchise business is or will be located in this State,
unless the franchisor has registered the franchise with the
Administrator by filing such form of notification application
and disclosure statement as required under Section 16 as the
Administrator may by rule or order require. The Administrator
may require the filing with the Administrator of such other
information or documents as are necessary or appropriate in
the public interest or for the protection of prospective
franchisees and may, but need not, require that such
additional information or documents be furnished to
prospective franchisees as part of the disclosure statement.
The registration of a franchise shall become effective on
the 21st 20th business day after the date of the filing of
the required materials, unless prior thereto one of the
following events has taken place: (1) the Administrator has
denied registration under subdivision (a)(3) of Section 22
entered an order suspending, terminating, prohibiting or
denying the registration of the franchise or franchise
broker; or (2) the Administrator has notified the franchisor
or its representative that the materials filed do not meet
the requirements of this Act, and the reasons therefor; or
(3) the Administrator in his discretion upon written request
of the franchisor, has granted acceleration so as to provide
for an effective date prior to the 20th business day.
Annually, but not later than one business day 30 days
before the anniversary date of the registration, the
franchisor shall file a report in a form prescribed by rule
of the Administrator. The report shall contain such documents
and information as the Administrator may by rule or order
require including, without limitation, the disclosure
statement updated as of a date within 120 days of the
anniversary date of the registration. The Administrator may,
in his discretion, review such report and disclosure
statement and notify the franchisor that additional
information or other modification of the disclosure statement
be included or deleted from the report and disclosure
statement, or issue an order under Section 23 of this Act, as
may be necessary or appropriate in the public interest, or
for the protection of prospective franchisees. The notice
issued by the Administrator may, at the Administrator's
discretion, suspend the right of the franchisor to offer to
sell franchises until the specified deficiencies are cured.
From the date the annual report is filed until the
anniversary date of the registration, the franchisor may
continue to use the previously registered disclosure
statement or the disclosure statement that is filed with the
annual report provided that, if the disclosure statement
filed with the annual report contains any material change in
any matter required to be disclosed, the franchisor shall
deliver the disclosure statement in accordance with the
requirements of subsection (2) of Section 5. The sale of a
franchise after the filing of the updated disclosure
statement and before the franchisor's receipt of a notice
from the Administrator requiring additional information or
other modification of the updated disclosure statement shall
be deemed the sale of a registered franchise, provided that
the updated disclosure statement contains all required
exhibits and the franchisor complies with the requirements of
subsection (2) of Section 5 with respect to the updated
disclosure statement. The fact that the franchise is
considered to be registered is not a finding that the updated
disclosure statement complies with the standard of disclosure
required by this Act.
(Source: P.A. 87-1143.)
(815 ILCS 705/11) (from Ch. 121 1/2, par. 1711)
Sec. 11. Amendments. Within 90 days of Upon the
occurrence of any material change in any facts required to be
disclosed, a franchisor whose franchise is registered under
this Act shall amend its disclosure statement and shall
deliver the amended disclosure statement in accordance with
the requirements of subsection (2) of Section 5 and Section
16 of this Act to any prospective franchisee, including
prospective franchisees to whom a disclosure statement was
previously delivered if the material change relates to or
affects the franchisor or the franchise offered to such
prospective franchisees. The Administrator may by rule define
what shall constitute a material change. The amended
disclosure statement shall be filed with the Administrator
who may require additional information or other modification
of the amended disclosure statement under Section 16 of this
Act or issue an order under Section 23 of this Act. The
notice issued by the Administrator may, at the
Administrator's discretion, suspend the right of the
franchisor to offer and sell franchises until the specified
deficiencies are cured. An amendment shall not be required if
the terms of the franchise agreement merely reflect changes
from the franchisor's registered franchise made pursuant to
negotiations between the franchisee and the franchisor. The
sale of a franchise after the filing of an amended disclosure
statement and before the franchisor's receipt of a notice
from the Administrator requiring additional information or
other modification of the amended disclosure statement shall
be deemed the sale of a registered franchise, provided that
the amended disclosure statement contains all required
exhibits and the franchisor complies with the requirements of
subsection (2) of Section 5 with respect to the amended
disclosure statement.
The fact that the franchise is considered to be
registered is not a finding that the amended disclosure
statement complies with the standard of disclosure required
by this Act.
(Source: P.A. 87-1143.)
(815 ILCS 705/16) (from Ch. 121 1/2, par. 1716)
Sec. 16. Form and contents of disclosure statements. 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.
The Administrator shall by rule prescribe the form and
content of disclosure statements. The Administrator may by
rule or order require (a) that specified portions of the
disclosure statement be emphasized by italics, bold face type
or other means, and (b) that earnings or sales projections or
estimations be qualified by appropriate legend. No portion
of the disclosure statement shall be underscored, italicized
or printed in larger or bolder type than the balance of the
statement unless the Administrator requires or permits it.
The Administrator, giving due regard to the desirability
of avoiding the burden of preparing duplicate disclosure
statements and similar documents, may by rule or order deem
to be in full or partial compliance with this Act any
disclosure statement which complies with the requirements of
any Federal law or administrative rule or with the law of any
other state, or is approved by an association of regulatory
agencies, which law, rule or approval requires substantially
the same disclosures to prospective franchisees as are
required under this Act.
All statements in the disclosure statement shall be free
from any false or misleading statement of a material fact,
shall not omit to state any material fact required to be
stated or necessary to make the statements not misleading,
and shall be accurate and complete as of the effective date
thereof.
When the disclosure statement is for a franchise offering
by a subfranchisor, the disclosure statement shall include
the information required by this Act with respect to the
subfranchisor instead of the franchisor; however, if the
franchisor from whom the subfranchisor acquired the right to
grant franchises is required to provide the franchisee with
goods, training programs, advertising, promotion,
supervision, assistance in site selections or other services,
the Administrator may in his discretion require the
disclosure statement for such franchise offering to include
part or all of the information required by this Act with
respect to both the subfranchisor and the franchisor from
whom the subfranchisor acquired the right to grant
franchises.
(Source: P.A. 85-551.)
(815 ILCS 705/22) (from Ch. 121 1/2, par. 1722)
Sec. 22. Enforcement.
(a) The Administrator may suspend, terminate, prohibit
or deny the sale of any franchise or registration of any
franchise, or franchise broker or salesperson if it appears
to him that: (1) there has been a failure to comply with any
of the provisions of this Act or the rules or orders of the
Administrator pertaining thereto; or (2) that the disclosure
statement or any amendment thereto includes any false or
misleading statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading is incomplete or
inaccurate in any material respect; or (3) that the
disclosure statement filed in conjunction with an initial
registration under Section 10 is materially deficient. A
disclosure statement is "materially deficient" if it fails to
comply with the requirements of the Uniform Franchise
Offering Circular Guidelines referred to in Section 16 or any
amendment thereto includes any false or misleading statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading; or (4) that the sale of
the franchise would constitute a misrepresentation, deceit or
fraud upon prospective franchisees; or (5) that any person in
this State is engaging in or about to engage in false,
fraudulent or deceptive practices or any device, scheme, or
artifice to defraud in connection with the offer or sale of
the franchise; or (6) that any person identified in the
disclosure statement or any person engaged in the offer or
sale of the franchise in this State has been convicted of an
offense, is subject to an order or civil judgment or is a
defendant in a proceeding required to be described in the
disclosure statement and the involvement of such person
creates an unreasonable risk to prospective franchisees; or
(7) (blank) that anything prohibited by this Act has been
used in connection with the offer or sale of the franchise;
or (8) (blank) that the financial condition of the franchisor
affects or would affect the ability of the franchisor to
fulfill obligations under the franchise or other agreement
and the franchisor is unable or unwilling to comply with a
rule or order of the Administrator issued under Section 15 of
this Act; or (9) that the franchisor's enterprise or method
of business includes or would include activities which are
illegal where performed; or (10) (blank) that there are
conditions affecting the soundness of the franchise so that
the sale thereof would be fraudulent, inequitable or would
work or tend to work a fraud upon prospective franchisees; or
(11) (blank) that an applicant has failed to diligently
process its registration application with the Administrator.
In no case shall the Administrator, or any person
designated by him, in the administration of this Act, incur
any official or personal liability by issuing an order or
other proceeding or by suspending, denying, prohibiting or
terminating the registration of a franchise broker or
salesperson, or by denying, suspending, terminating or
prohibiting the registration of franchises, or prohibiting
the sale of franchises, or by suspending or prohibiting any
person from acting as a franchise broker or salesperson.
The Administrator may exercise any of the powers
specified in Section 31 of this Act.
(b) The Administrator, with such assistance as he may
from time to time request of the state's attorneys in the
several counties, may institute proceedings in the circuit
court to prevent and restrain violations of this Act or of
any rule or order prescribed or issued under this Act. In
such a proceeding, the court shall determine whether a
violation has been committed, and shall enter such judgment
or decree as it considers necessary to remove the effects of
any violation and to prevent such violation from continuing
or from being renewed in the future. The court, in its
discretion, may exercise all powers necessary for this
purpose, including, but not limited to, injunction,
revocation, forfeiture or suspension of the charter,
franchise, certificate of authority or privileges of any
corporation, association, limited partnership or other
business organization operating under the laws of this State,
dissolution of domestic corporations or associations,
suspension or termination of the right of foreign
corporations or associations to do business in this State, or
restitution or payment of damages by a franchisor to persons
injured by violations of this Act, including without
limitation an award of reasonable attorneys fees and costs.
(Source: P.A. 85-551.)
(815 ILCS 705/30 rep.)
Section 990. The Franchise Disclosure Act of 1987 is
amending by repealing Section 30.
Section 999. Effective date. This Act takes effect upon
becoming law.