The Franchise Memorandum

We reported in The GPMemorandum, Issue No. 223, that the Virginia State Corporation Commission had issued an Order to Take Notice regarding the state’s franchise law. That Order stated that the Virginia Division of Securities and Retail Franchising had recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment would have provided an exemption from Virginia’s franchise registration law for franchisors that offer or sell a “single unit” franchise in which the “actual minimum initial investment” exceeds $5 million. The proposed exemption would not exempt franchisors from Virginia’s disclosure requirements, but would have allowed franchisors to avoid the registration process when a franchisee’s initial investment exceeded the threshold.

Gray Plant Mooty submitted comments on the proposed exemption to the Virginia State Corporation Commission, which comments generally sought to relax the stringent standards of the proposed exemption, and also to clarify points of ambiguity. More specifically, our comments requested that Virginia: (1) reduce the $5 million threshold amount, (2) calculate the “actual minimum initial investment” using the FTC Franchise Rule’s Item 7 requirements, (3) exempt qualifying transactions from both registration and disclosure, and (4) delete the requirement that a qualifying transaction must be for a “single unit” franchise. On January 16, 2018, the Virginia Division of Securities and Retail Franchising issued a response to our comments which amended the proposed exemption to reduce the $5 million threshold amount to $3 million, and to calculate the “actual minimum initial investment” using the FTC Franchise Rule’s Item 7 requirements. The response did not include a proposed effective date, but Gray Plant Mooty will continue to monitor the progress of the proposed exemption.