The Illinois Franchise Disclosure Act and Rules
Know Your Rights and Responsibilites

Please call:

(217) 782-4465; TTY: 1-877-844-5461

or write to:

Office of the Attorney General
Franchise Bureau
500 South Second Street
Springfield, Illinois 62706

Please visit our Web site where you will find this booklet and a franchise buyer’s guide titled "Before You Buy a Franchise" and other information about the Illinois Attorney General’s Office.

Franchising continues to provide unique opportunities to businesses that want to expand and to business buyers who want the benefit of the franchisor's leadership with a proven product or service.

It is vital to your success as a franchisor or franchisee that you understand the obligations and rights set out in the Illinois franchise laws.

The Franchise Bureau of the Attorney General's Office administers the Franchise Disclosure Act with the goal of encouraging business development, while protecting the interests of the franchisor, franchisee and Illinois residents.

My office has cooperated with the other states regulating franchising and the Federal Trade Commission to streamline the requirements franchisors must meet in Illinois. Our registration and regulatory system has earned acclaim from both large and small businesses and is an important factor in the excellent franchising business climate in Illinois.

I am sure you will find this handbook helpful. My Franchise Bureau also stands ready to assist you, your attorney or accountant if there are any questions about your obligations or rights.

Lisa Madigan Attorney General

Copyright C 1999 by the Illinois Attorney General
Printed in the United States of America

All rights reserved. Except as permitted by Sections 107 and 108 of the 1976 United States Copyright Act, no part of this publication may be reproduced by any means, or stored in a database or retrieval system, without prior written permission of the Illinois Attorney General.

Permission is granted for UFOC preparers to enter, store and execute required documents or photocopy same to aid in the submission of a UFOC or Annual Report. Permission to reproduce this publication is also permitted if done without profit and appropriate attribution is given.

Address other requests for permission to the Illinois Attorney General.

This publication provides in a single source, the Illinois Franchise Disclosure Act (“Act”) and the Rules (“Rules”) made pursuant to the Act. The Uniform Franchise Offering Circular (“UFOC ”) disclosure document required by all states regulating franchises, and which format has been approved by the Federal Trade Commission (FTC), is part of the Illinois Rules in Appendix A, Illustration L.

For your convenience, a Table of Contents for the Act is cross-referenced to the Rules. The Rules have their own, separate Table of Contents. The text of the Act is provided in this publication without legislative references and the “notes” after some sections are not part of the Act, but represent some of the cross-references you may be interested in. There is also an index at the end of the reference book that applies to both the Act and the Rules.

If you have determined that the business entity you are concerned about is not a franchise, you may want to refer to the last part of this book where a brief reference is made to the Illinois Business Opportunity Sales Law administered by the Secretary of State. You will also find a brief reference to the Illinois Business Brokers Act, which may be of interest to Franchise Brokers as well as other business matchmakers.

An agreement claiming that the business will or will not be a franchise is not controlling. The entire contract must be reviewed to determine if it meets the statutory definition of a franchise.

Many other laws may apply to the business entity you would like to create, sell or buy, which makes it very important for you to consult with your attorney before committing your resources to a particular business.

The Attorney General and his staff are not permitted to give legal advice to individuals or business entities. The information that follows, including various notes or comments, is provided for your convenience and not for the purposes of providing legal advice. Every reasonable attempt has been made to proofread this publication for accuracy, but it is your responsibility to read the precise language of the Act and Rules in the official publications for which references have been provided.

The Act and Rules are current as of July 12, 2000.

Introduction

Table of Contents for Franchise Disclosure Act and Cross Reference to Rules

Franchise Disclosure Act

Table of Contents for Rules

Rules Under The Franchise Disclosure Act

UFOC Guidelines/General Instructions

Business Opportunity Sales Law

Business Brokers Act

Index to Act, Rules and Other Information

TABLE OF CONTENTS FOR Franchise Disclosure Act 815 ILCS 705

CROSS REFERENCE TO Rules Under the Act 14 Ill Admin Code §200

§1. Short Title §2. Findings & Purpose §3. Definitions

Act

(1) Franchise

102 Marketing Plan or System 103 Substantially Associated 104 Franchise Fee 105 Absence of Fee Exclusion 106 Wholesale/Retail Prices 107 Established Market 108 Indirect Franchise Fee 37

(2) Franchisee

(3) Franchisor

702 Responsibility for Filing the Application

(4) Subfranchise

(5) Subfranchise

702 Responsibility for Filing the Application 56

(6) Order (7) Person (8) Rule (9) Sale or sell (10) State (11) Fraud and deceit (12) Offer or offer to sell (13) Publish

(14) Franchise fee

104 Franchise Fee

105 Absence of Fee Exclusion 106 Bona Fide ... Prices 107 Established Market 108 Indirect Franchise Fee

(15) Disclosure statement (16) Write or written (17) (blank) (18) Marketing plan/system

(19) Administrator

112 Administrator

(20) Offer to sell [also see Definition (12)]

115 Tradeshows 306 Internet Offers

(21) Franchise broker [also see Also §5(3)and §13 of the Act]

116 Franchise Broker 202 Exemptions 900 Documents to File 901 Notice of Broker Registration Appendix B, Broker Reg. Forms

(22) Salesperson

Correspondent (Definition not in Act)

113 Correspondent

§4. Jurisdiction and Venue

608 Jurisdiction and Venue

§5. Prohibited Practices

(1) Sale of Unregistered Franchise

115 Tradeshows 306 Internet Offers

(2) Failure to deliver disclosure statement

109 Consideration

(3) Sale by unregistered franchise broker [also see also §3(21) and §13 of Act]

900 Documents to File 901 Notice of Broker Registration Appendix B, Broker Reg. Forms

(4) Filing of untrue report

§6. Fraudulent Practices

300 Deceptive Practices 301 Statements of Profitability 302 Opinions of Counsel 303 Inconsistent Disclosure 304 Dollar Statements on

§7. Sale by Franchisee 17

§8. Exemptions (bank/ ins.co.) [also see: §3(i)(ii)(iii) of this Act; 815 ILCS 715/10.1 and 720/1.1(2)]

117 Cooperative 202 Exemptions by Rule

§9. Exemptions From Disclose & Registration

201 Order of Exemption

§10. Registration and Annual Report 815 ILCS 705

118 UFOC Requirements 119 Notification 120 Filing Deadlines 600 Original Registration 603 Annual Report 610 Denial of Registration 701 Number of Applications 702 Responsibility for Filing

§11. Amendments (Material changes)

110 Material 114 Negotiated Change

§12. Period of Effectiveness

§13. Registration of Brokers [also see: §3(21) and §5(3) of Act]

900 Documents to File 901 Notice of Broker Registration Appendix B, Broker Reg. Forms

§14. Effect of Registration

§15. Escrow of Franchise Fees - Surety Bonds

500 Assurance of Financial Ability 502 Escrow of Funds 503 Release of Escrowed Funds 504 Guarantee of Performance 505 Performance or Surety Bond 506 Certificate of Deposit 507 Release--Certificate of Deposit 508 Deferral of Franchise Fee Appendix C, Escrow Forms Appendix D, Guaranty Forms Appendix E, Surety Bond Appendix F, Certificate of Deposit Forms

§16. Form and Contents of Disclosure Statements 815 ILCS 705

20 118 UFOC Requirements 119 Notification 118 UFOC Requirements 119 Notification 600 Original Registration 603 Annual Report 604 Amendment 605 Final Circular Submission 606 Multiple Filings 701 Number of Applications 702 Responsibility for Filing Appendix A, Illustrations A-N [Illustration L is the UFOC] UFOC APPENDIX A, ILLUSTRATION L TABLE OF CONTENTS ITEM 1 Franchisor/Predecessor/Affiliate 2 Business Experience 3 Litigation 4 Bankruptcy 5 Initial Franchise Fee 6 Other Fees 7 Initial Investment 8 Restricted Product/Services Sources 9 Franchisee's Obligations 10 Financing 11 Franchisor's Obligations 12 Territory 13 Trademarks 14 Patents/Copyrights/Proprietary Info 15 Management Requirements 16 What Franchise May Sell 17 Renewal/Termination/Transfer/ Dispute Resolution 18 Public Figures 19 Earnings Claims 20 List of Outlets 21 Financial Statements 22 Contracts 23 Receipt 126

§17. Participation in Trade Associations §18. Discrimination §19. Termination of Franchise §20. Nonrenewal of Franchise §21. Franchise Advisory Board §22. Enforcement 22

§23. Hearings & Notice of Orders [also see: §33]

404 Hearing Requests

§24. Civil Penalties §25. Criminal Prosecution §26. Private Civil Actions §27. Periods of Limitation [also see: §24 and §25 and Index “Limitations”] §28. No Other Civil Liability §29. Certificate of Registration §30. (blank) §31. Powers of Administrator 26

CROSS REFERENCE TO Rules Under the Act 14 Ill Admin Code §200

§32. Rules and Interpretive Opinions

200 Opinions and No Action Letters

§33. Hearings

400 Preamble 401 Party 402 Hearing Officer 403 Office 404 Hearing Requests 405 Notice of Hearing 406 Continuances 407 Evidence 408 Record of Proceedings 409 Record of Hearing 410 Duties of Hearing Officer 411 Final Administrative Decision

§34. Judicial Review §35. Service of Process §36. Books and Records §37. Public Inspection §38. Copies to be Furnished §39. Destruction of Records

§40. Fees

607 Public Examination And Photocopying of Disclosure Statements

§41. Waivers Void

609 Waiver

§42. Burden of Proof §43. Construction §44. Applicability

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