The FTC Rule allows some franchisors to be exempt from the franchise disclosure document requirements. There are seven stated exemptions, and some of them are tied to certain monetary values. The FTC is authorized to adjust them every fourth year based upon the Consumer Price Index so that the laws are still relevant in changing economic conditions. The Commission is required to update the monetary exemption thresholds in 2020.
The following adjustments will go into effect on July 1, 2020:
1. A franchisor is exempt when the franchisee pays less than $615 for the franchise. The previous threshold was $570.
2. A franchisor is exempt in when the franchisee makes a large investment of at least $1,233,000. This threshold excludes the cost of unimproved land and the franchisor’s or its affiliate’s financing. The previous threshold was $1,143,100.
3. A franchisor is exempt when the franchisee is a large, sophisticated entity that has been in business for at least five years and has a net worth of at least $6,165,500. The previous threshold was $5,715,500.
Previously exempt franchisors need to review these thresholds to ensure that they will still be exempt after June 2020.
While these exemption rules apply to the federal law, states that require FDD registration may have very different thresholds for exemption. Franchisors must verify the threshold amount(s) with each state individually.
The team at Manning, Fulton & Skinner can help you determine how the franchise exemption threshold adjustments apply your business so that you can maximize their impact.