Virginia Proposes Amendment to Franchise Rules

The Virginia State Corporation Commission (the “Commission”) is considering making some changes to its existing Virginia Franchise Rules (“Rules”). These changes come about in response to a recommendation from the Virginia Division of Securities and Retail Franchising to provide a new exemption to registration under the Rules.

Under the proposed amendment, franchisors would be able to claim an exemption from registration for the offer or sales of a single unit franchise where the minimum initial investment is above $5,000,000. To perfect this exemption, franchisors would be required to file an exemption form, a uniform consent to service of process, an entity resolution, and a copy of the franchise disclosure document on CD-ROM. The franchisor would also be required to pay an initial exemption fee of $500 and a annual renewal fee of $250.

Notably, this exemption would not be available where the $5 million threshold is met only by relying on a multi-unit investment, even where the franchisee is planning to build all of the units at the same time. As a result, this exemption will obviously only apply to a very small category of franchisors, presumably those in the hotel or sports franchising businesses. It’s also interesting to observe that although this rule change (if adopted) would offer an exemption from registration, it does not provide an exemption from disclosure. In other words, even companies offering these very large initial investment franchises would be required to provide a franchise disclosure document to its prospective franchisees in Virginia, which is not the case under the Federal Trade Commission‘s Franchise Rule (which exempts franchises with initial investments greater than $1,143,100 from the disclosure requirement).

This change to the Rules is currently open for public comment. The public comment period ends on December 1, 2017. If you wish to submit a comment, you may do so by following the instructions available on the Commission’s website at http://www.scc.virginia.gov/case.

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