N.Y. General Business Law § 684: Exemptions

§ 684. Exemptions. 1. The department of law is hereby authorized and

empowered to exempt by rule or regulation any person, franchise, or

transaction from any provision of section six hundred eighty-three of

this article or from any rule or regulation thereunder if the department

finds that such action is not inconsistent with the public interest or

the protection of prospective franchisees.

2. The department of law may, upon application and within its

discretion, exempt from the registration requirements of section six

hundred eighty-three of this article the offer and sale of a franchise

if:

(a) The franchisor has a net worth on a consolidated basis, according

to its most recently audited financial statement, of not less than five

million dollars; or the franchisor has a net worth, according to its

most recently audited financial statement, of not less than one million

dollars and is at least eighty percent owned by a corporation which has

a net worth on a consolidated basis, according to its most recently

audited financial statement, of not less than five million dollars; and

(b) The franchisor files with the department of law an application for

an exemption, on forms and in the manner prescribed by the department,

and a consent to service of process on the form required by the

department; and

(c) The franchisor discloses in writing to each prospective

franchisee, at least seven days prior to the execution by the

prospective franchisee of any binding franchise or other agreement, or

at least seven days prior to the receipt of any consideration, whichever

occurs first, the following information:

(1) The name of the franchisor, the name under which the franchisor is

doing or intends to do business, and the name of any parent or

affiliated company that will engage in business transaction with the

franchisee.

(2) The franchisor's principal business address and the name and

address of its agent in this state authorized to receive process.

(3) The business form of the franchisor, whether corporate,

partnership, or otherwise.

(4) Such information concerning the identity and business experience

of persons affiliated with the franchisor as the department may by rule

prescribe.

(5) The business experience of the franchisor, including the length of

time the franchisor (i) has conducted a business of the type to be

operated by franchisees, (ii) has granted franchises for such business,

and (iii) has granted franchises in other lines of business.

(6) A copy of the typical franchise contract or agreement proposed for

use and in use in this state, including all amendments, deletions,

variations, and supplements thereto.

(7) A statement of the franchise fee charged, the proposed application

of the proceeds of such fee by the franchisor, and the formula by which

the amount of the fee is determined if the fee is not uniform and the

same in all cases.

(8) A statement describing any payments or fees other than franchise

fees that the franchisee is required to pay to the franchisor, including

royalties and payments or fees which the franchisor collects in whole or

in part on behalf of a third party or parties.

(9) A statement of the conditions under which the franchise agreement

may be terminated or renewal refused, or repurchased at the option of

the franchisor.

(10) A statement as to whether, by the terms of the agreement or by

other device or practice, the franchisee is required to purchase from

the franchisor or his designee services, supplies, products, fixtures or

other goods relating to the establishment or operation of the franchise

business, together with a description and the terms and conditions

thereof.

(11) A statement as to whether, by the terms of the franchise

agreement or by other device or practice, the franchisee is limited in

the goods or services offered by him to his customers.

(12) A statement of the terms and conditions of any financing

arrangements when offered directly or indirectly by the franchisor or

his agent or affiliate.

(13) A statement of any past or present practice or of any intent of

the franchisor to sell, assign, or discount to a third party any note,

contract, or other obligation of the franchisee in whole or in part.

(14) If any statement of estimated or projected franchisee earnings or

income is used, a statement of such estimate or projection and the data,

methods and computations upon which such estimate or projection is

based.

(15) A statement as to whether franchisees receive an exclusive area

or territory.

(16) Other information related to the offer and sale of the franchise

as the department of law may reasonably require.

(d) Applications for exemptions shall be signed and verified by the

franchisor in the same manner provided in the civil practice law and

rules for the verification of pleadings, and shall be filed with the

department of law at its office in the city of New York.

3. There shall be exempted from the registration provisions of section

six hundred eighty-three of this article the offer and sale of a

franchise if:

(a) (i) The franchisor has a net worth on a consolidated basis,

according to its most recent audited financial statement, of not less

than fifteen million dollars; or the franchisor has a net worth,

according to its most recent audited financial statement, of not less

than three million dollars and is at least eighty percent owned by a

corporation which has a net worth on a consolidated basis, according to

its most recent audited financial statement, of not less than fifteen

million dollars; and

(ii) The franchisor discloses in writing to each prospective

franchisee, at least seven days prior to the execution by the

prospective franchisee of any binding franchise or other agreement, or

at least seven days prior to the receipt of any consideration, whichever

occurs first, such information as is required to be disclosed under

subparagraph two of paragraph (c) of subdivision two of this section.

(b) The offer or sale is to a bank, savings institution, trust

company, insurance company, investment company, or other financial

institution, association, or institutional buyer, or to a broker-dealer,

where the purchaser is acting for itself or in some fiduciary capacity.

(c) The transaction is pursuant to an offer directed by the franchisor

to not more than two persons, other than persons specified in this

subdivision, if the franchisor does not grant the franchisee the right

to offer franchises to others, a commission or other remuneration is not

paid directly or indirectly for soliciting a prospective franchisee in

this state, and the franchisor is domiciled in this state or has filed

with the department of law its consent to service of process on the form

prescribed by the department.

(d) The offer or sale by a franchisor of a franchise to one of his

existing franchisees. This exemption shall apply where:

(i) the existing franchisee has actively operated a franchise of the

selling franchisor for the eighteen months preceding the offer; and

(ii) the existing franchisee purchases the franchise in order to

operate the business and not for the purpose of resale; and

(iii) the franchisor reports the sale to the department of law on the

form required by the department within fifteen days of the sale.

4. The department of law may, in its discretion, deny or revoke an

exemption with respect to a specific franchisor or transaction, or

withdraw or further condition any exemption enumerated in this section.

5. The offer or sale of a franchise by a franchisee for his own

account or the offer and sale of an entire area franchise owned by a

subfranchisor for his own account is exempted from the registration

provisions of section six hundred eighty-three of this article if:

(a) The sale is an isolated sale and not part of a plan of

distribution of franchises; and

(b) The sale is not effected by or through a franchisor; and

(c) The franchisee furnishes to the prospective purchaser, at least

one week prior to the execution of any binding contract or purchase

agreement, or at least one week prior to the receipt of any

consideration, whichever occurs first, a copy of the offering prospectus

of the franchisor (including amendments, if any) currently registered

with the department of law.

A sale is not effected by or through a franchisor merely because a

franchisor has a right to approve or disapprove a different franchisee.

6. This article shall not be applicable to any transaction relating to

a bank credit card plan. "Bank credit card plan" means a credit card

plan in which the issuers of credit cards are only: banks regulated by

or under the supervision of the Federal Reserve Board; the Federal

Deposit Insurance Corporation; the Controller of the Currency of the

United States; or the Superintendent of Financial Services of this

state; or persons controlling such banks, provided that the assets of

such a bank or banks represent a majority of the assets on a

consolidated basis of any holding company system of which such card

issuers may be a party; or, persons controlled by such banks.