Changes to the Illinois Franchise Disclosure Law Effective October 1, 2009

Changes to the Illinois Franchise Disclosure Law Effective October 1, 2009

 
In light of the Amended FTC Franchise Rule, the Illinois Attorney Generals Office undertook an ambitious project to revise the Illinois Franchise Disclosure Act of 1987 and certain related statutes to make the statute fit better with the federal regulatory scheme, and also remedy some other ailments of the Act. This analysis discusses the key changes to the Act and their impact on franchisors and franchisees.
 
Excerpt:
 
The last few years have seen many changes to federal and state franchise laws and regulations. The most important change was the adoption of the new federal rule on disclosure requirements in connection with franchise sales (the "Amended FTC Franchise Rule"). While many of the changes made to the federal franchise regulatory regime were intended to conform that regime to the disclosure rules implemented by the states -- the UFOC Guidelines of the North American Securities Administrators Association ("NASAA") -- the Amended FTC Franchise Rule went further, modernizing and streamlining the disclosure mechanisms in several ways. States found themselves with the more antiquated regulatory laws. In light of the Amended FTC Franchise Rule, the Illinois Attorney General's Office, together with the Illinois State Bar Association, undertook an ambitious project to revise the Illinois Franchise Disclosure Act of 1987 (the "Act") and certain related statutes to make the statute fit better with the federal regulatory scheme, and also remedy some other ailments of the Act. This article discusses the key changes to the Act and their impact on franchisors and franchisees.
 
Use of FTC Format Disclosure Document (FDD)

One of the major changes, though it had already been implemented in practice, was conforming the pre-sale disclosure requirements of the Act to those of the Amended FTC Franchise Rule. Before the amendment, the Act had required that franchisors provide prospective franchisees subject to the Act with a disclosure document prepared in compliance with the NASAA UFOC Guidelines. Now, the Act instead references the Amended FTC Franchise Rule, as it may be amended, and guidelines promulgated thereunder. Note that the Act still contains certain Illinois specific provisions. For practitioners who want to create a national FDD, those Illinois specific provisions can usually be dealt with in a state addendum.

New First Disclosure Requirements

The disclosure requirements for pre-sale disclosure of prospective franchisees were amended by the Amended FTC Franchise Rule, but in this regard, Illinois was already a step ahead. Consistent with the Act, the FTC Franchise Rule now requires disclosure of an FDD to prospective franchisees at least 14 calendar days before the signing of an agreement or the receipt of any money by the franchisor (or its affiliates). The Illinois Business Opportunity Sales Law of 1995 was not consistent with the Act in this regard and the legislators took the opportunity to amend it in connection with the amendments to the Act. Now franchises that fit the definition of a business opportunity under that statute, but that are nonetheless subject to the Act, are subject to the same timing requirements under the business opportunity statute as under the Act. [footnotes omitted]
 
 
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