The Virginia State Corporation Commission issued an Order to Take Notice on October 11, 2017, stating that the Virginia Division of Securities and Retail Franchising has recommended certain revisions to Chapter 110 of Title 21 of the Virginia Administrative Code entitled “Retail Franchising Act Rules.” The proposed amendment provides 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 does not exempt franchisors from Virginia’s disclosure requirements, but allows franchisors to avoid the registration process when a franchisee’s initial investment exceeds the $5 million threshold. To qualify for the exemption, the prospective franchisee must be represented by counsel, and the franchisor must reasonably believe that the prospective franchisee has sufficient knowledge and experience to capably evaluate the merits and risks of the investment.
If adopted, franchisors seeking to take advantage of the proposed exemption must file, no later than ten business days before the offer or sale of a qualifying franchise, a Form H Notice of Claim of Exemption, a uniform consent to service of process, an entity resolution, a copy of the franchisor’s FDD in an approved electronic form, and a $500 filing fee ($250 to renew annually; $100 to amend). Franchisors must also obtain from the prospective franchisee a signed certification verifying the grounds for the exemption. The Order to Take Notice did not include a proposed effective date. A complete copy of the proposed exemption can be found at www.scc.virginia.gov/srf. Comments and requests for hearing on the proposed exemption may be submitted to the Commission through December 1, 2017, and may be sent via mail or electronically following the instructions at www.scc.virginia.gov/case. Although the proposed amendment contains some ambiguities, we anticipate that the comment process will resolve most uncertainties.