July 13, 2020

Volume X, Number 195

July 13, 2020

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July 10, 2020

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New York Renews Its Limited Franchise Trade Show Exemption

Anticipating the return of the International Franchise Exposition ("IFE") to New York City this summer, the State of New York has just renewed the limited exemption to its Franchise Sales Act (N.Y. Gen. Bus. L. § 680 et. seq.) (the "Act").  The three-day exemption will allow franchisors that are not registered with the State to participate in a this year's IFE under certain circumstances.  The exemption, which was first enacted by the State last year, would allow an eligible franchisor to exhibit and offer for sale, but not to sell, franchises at the IFE.  Before a company can actually sell a franchise covered under the Act, the franchisor would still have to register with the state as provided under New York law.  

Ordinarily, an unregistered franchisor that exhibits at a trade show in a franchise registration state would potentially violate that state's registration law, because the simple act of exhibiting at the show is arguably the making of an unregistered "offer to sell" a franchise.  For this reason, franchise companies have argued that state franchise registration laws unnecessarily discourage (and perhaps prevent) companies from participating in franchise expos, even where those companies do not plan to make franchise sales without complying with applicable state law.  

Essentially, franchisors (and companies that are interested in franchising) contend that participating in trade shows can provide a valuable opportunity for them to "test the waters" to determine the market demand for their concepts.  According to their argument, if they are allowed to participate in trade shows without having to first register in the host state, they would be able to gain valuable insight from comments and suggestions made by prospects, other franchisors, and even attending consultants. 

From the franchisee's perspective, greater trade show participation by franchisors will increase the availability of information about a variety of concepts and give them the opportunity to obtain information, one-on-one, from representatives of those concepts – an opportunity that is unique to the franchise expo format.  Further, franchisees contend that more educated franchise companies make better franchisors, and will result in higher-quality Franchise Disclosure Documents and a better overall franchise system. 

To take advantage of New York’s exemption, a franchisor is required to complete and submit an application exemption form and supporting materials to the Office of the New York Attorney General.  Follow the link: application form for U.S.-based franchisors / application form for international franchisors.

Please note that exemptions are not automatic; the Attorney General's office will review applications and reserves the right to deny any request.  For this reason, it's important for franchisors planning to take advantage of the exemption to file well in advance of this year's IFE.

© Copyright 2020 Armstrong Teasdale LLP. All rights reserved National Law Review, Volume III, Number 76


About this Author

Armstrong Teasdale lawyers practice extensively in the areas of franchising and distribution, including the development of new franchise systems, preparation of franchise offering circulars, compliance with federal and state requirements, contract negotiation, trials and appeals in all courts, representation in arbitration proceedings, mediation, and assistance in evaluating the impact of these areas on other client operations.

Franchise and distribution lawyers review, analyze and stay current with legislation and regulations promulgated by government authorities. Additionally,...