Franchise Act Policy Statements
Table of Contents
| Statement | Topic |
| FPS-01 | Franchisor/Franchisee Relationship Disclosure Requirements, RCW 19.100.180 |
| FPS-02 | RCW 19.100.250 & 19.110.180 - Requests for Interpretive and No-Action Letters |
| FPS-03 | RCW 19.100.050, Surety Bonds in Lieu of an Impound |
| FPS-04 | Franchise Broker License Effective Period |
| FPS-05 | Filing Date Determination |
| FPS-06 | Franchise Broker Registration |
| FPS-07 | Franchise Offerings on the Internet |
Topical Index
| Topic | Where Found |
| Broker Licenses | FPS-04 |
| Broker Registration | FPS-06 |
| Filing Date - Determination of | FPS-05 |
| Franchisor/Franchise Relationship Disclosure | FPS-01 |
| Interpretive Letters | FPS-02 |
| Licenses - Broker | FPS-04 |
| No-Action Letters - Requests for | FPS-02 |
| Registration | |
|
Broker Registration |
FPS-06 |
|
Brokers |
FPS-04 |
|
FPS-01 |
| Relationship of Franchisor/Franchisee - Disclosure | FPS-01 |
| Selling Agents - Registration | FPS-06 |
| Surety Bonds in Lieu of Impound | FPS-03 |
| Termination - Disclosure Requirements | FPS-01 |
Citations
| Citation | Where Found | Topic |
| 19.100.010(11) | FPS-06 | Broker Registration Required |
| 19.100.050 | FPS-03 | Surety Bonds in Lieu of an Impound |
| 19.100.180 | FPS-01 | Franchisor/Franchisee Relationship Disclosure Requirements |
| 19.100.240(4) | FPS-04 | Franchise Broker License - Effective Period |
| 19.100.250 | FPS-02 | Requests for Interpretive and No-Action Letters |
| 19.110.190 | FPS-02 | Requests for Interpretive and No-Action Letters |
| WAC's 460- | ||
| 80-410 | FPS-03 | Surety Bonds in Lieu of an Impound |
FRANCHISE ACT POLICY STATEMENT FPS-1
RE: FRANCHISOR - FRANCHISEE RELATIONSHIP DISCLOSURE REQUIREMENTS, RCW 19.100.180
Question Presented:
How should the rights of franchisees and prohibitions of the Franchise Investment Protection Act be disclosed?
Discussion
The Washington State Securities Administrator finds that franchise offering circulars and agreements filed with the Securities Division are often inconsistent with the Washington Franchise Investment Protection Act, Chapter 19.100 RCW, and in particular, section RCW 19.100.180. RCW 19.100.180 prescribes standards of conduct between franchisors and their franchisees which includes the regulation of the renewal and termination of franchises and the prohibition on waiver of franchisee rights under the Act.
Conclusion:
If any of the provisions of the franchise offering circular or franchise agreement are inconsistent with the Washington Franchise Investment Protection Act, the franchisor shall conform the offering circular and franchise agreement to the Franchise Investment Protection Act. In order to conform the offering circular and franchise agreement to Washington law, the franchisor may attach one of the following riders to the franchise offering circular or franchise agreement:
Rider Number one:
If any of the provisions in the franchise offering circular or franchise agreement are inconsistent with the relationship provisions of RCW 19.100.180 or other requirements of the Washington Franchise Investment Protection Act, the provisions of the Act will prevail over the inconsistent provisions of the franchise offering circular and franchise agreement with regard to any franchise sold in Washington.
In any arbitration involving a franchise purchased in Washington, the arbitration site shall be either in Washington or in a place as mutually agreed upon at the time of the arbitration, or as determined by the arbitrator.
or
Rider Number Two:
CAVEAT FOR FRANCHISOR-FRANCHISEE RELATIONSHIP STATUTES (INCLUDING RENEWAL AND TERMINATION RIGHTS)
"These states have statutes which may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise: (list of states, including Washington [Code Section 19.100.180]). These and other states may have court decisions which may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise."
In any arbitration involving a franchise purchased in Washington, the arbitration site shall be either Washington or in a place mutually agreed upon at the time of the arbitration, or as determined by the arbitrator.
The Administrator may permit or require modifications to the Rider as facts and circumstances warrant.
Adopted January 1, 1991
Replaces Statement of Policy 83-39
JACK L. BEYERS, Securities Administrator
Prepared by Martin Cordell, Securities Examiner
FRANCHISE ACT POLICY STATEMENT FPS-2
RE: RCW 19.100.250 & RCW 19.110.180 - REQUESTS FOR INTERPRETIVE AND NO-ACTION LETTERS
The following procedures must be followed in requesting a no-action or interpretive opinion from the Securities Division:
- The request must be submitted to the Administrator in writing. The letter should be captioned with the name of the party who will be relying upon the Administrator's response and should indicate that a no-action or interpretive opinion is sought.
- The requesting letter should cite the particular statutes or rules upon which interpretation or no-action is sought.
- The names of all involved companies and parties should be disclosed. The Division does not issue interpretive or no-action letters relating to unnamed companies or individuals or hypothetical situations, nor on matters of pending, or in preparation for, litigation.
- The request should be tailored to resolving the issue at hand and should not attempt to discuss every possible situation that may arise in the future.
- The letter should be concise, to the point, and contain all material facts necessary to resolve the issues at hand. Relevant documents may be included, but are not a substitute for item 6.
- It is important that the writer indicate why it is believed a problem exists, his or her opinion and proposed resolution, and the precedents or other legal authority supporting that position.
The Division may decline to respond to letters that are not prepared in accordance with the above listed procedures.
See RCW 19.100.250 & RCW 19.110.180.
Adopted January 1, 1991
Replaces Statements of Policy 83-37
JACK L. BEYERS, Securities Administrator
Prepared by William M. Beatty, Securities Examiner
FRANCHISE ACT POLICY STATEMENT FPS-3
RE: RCW 19.100.050, Surety Bonds in Lieu of an Impound
Question Presented:
If a franchise impound is required as a condition for registration pursuant to RCW 19.100.050, may a franchisor substitute a surety bond for a franchise impound agreement?
Statute:
RCW 19.100.050 authorizes the Securities Administrator to require the escrow or impoundment of franchise fees if the Administrator find that it is necessary and appropriate for the protection of prospective franchisees.
Regulation:
WAC 460-80-410 provides that where a franchise applicant has failed to demonstrate that adequate financial arrangements have been make to fulfill obligations to provide real estate, improvements, equipment, inventory, training or other items included in the offering, the Administrator may impose as a condition of registration an impoundment of franchise fees and other funds paid by the franchisee or subfranchisor until no later than the opening of the franchise business.
Discussion:
RCW 19.100.050 and WAC 460-80-410 authorizes the Securities Administrator to impound franchise fees where the franchisor has failed to demonstrate that adequate financial arrangements have been made to fulfill its obligations to franchisees. Funds held in escrow or in an impound account are not released by the Administrator until the franchisor has fulfilled its obligations to provide real estate, improvements, equipment, inventory, training or other items included in the offering until no later than the opening of the franchise business. Generally, the Administrator will impose such a condition when a franchisor is undercapitalized, potentially insolvent or is a start-up or development stage company. Other registration states permit a surety bond to be used in lieu of an impound account. A surety company provides a surety bond which guarantees payment to the franchisees if the conditions of the bond, such as the franchisor's duty to provide real estate, improvements, equipment, etc. . . , are not met. The amount of the bond is the amount of the initial franchise fee times the number of franchises expected to be offered in the state during the next twelve months.
Conclusion:
The Securities Administrator has determined that a franchisor may demonstrate that adequate financial arrangements have been made to fulfill its obligations to a prospective franchisee by submitting a surety bond in lieu of a franchise impound agreement. The amount of the bond is fixed at the amount of the initial franchise fee multiplied by the estimated number of franchises to be sold in a twelve month period in the state of Washington.
Adopted January 1, 1991
Replaces Statement Policy 85-63
JACK L. BEYERS, Securities Administrator
Prepared by Martin Cordell, Securities Examiner
FRANCHISE ACT POLICY STATEMENT FPS-4
RE: FRANCHISE BROKER LICENSE EFFECTIVE PERIOD
Question Presented:
RCW 19.100.240(4) provides that the initial registration fee for a franchise broker will be fifty dollars and twenty-five dollars for each annual renewal. What it the effective period of a Franchise Broker license to be used in determining the annual renewal date?
Conclusion:
The Franchise Broker's License shall be effective for the calendar year and shall expire on the last day of the year.
Adopted January 1, 1991. As Amended October 23, 1991
Replaces Statement of Policy 83-50
JACK L. BEYERS, Securities Administrator
Prepared by Martin Cordell, Securities Examiner
FRANCHISE ACT POLICY STATEMENT FPS-5
RE: FILING DATE DETERMINATION
Question Presented:
The Washington Franchise Investment Protection Act provides that certain documents be filed with the Director of the Department of Financial Institutions. How is the filing date of a document filed with the Director determined?
Discussion:
The Securities Administrator has interpreted the Act to mean that the filing date is the first date it can be proven that the document was received by the Securities Division of the Department of Financial Institutions. All mail and hand carried franchise documents coming directly to the Securities Division of the Department of Financial Institutions will be date stamped. The statutory time period will begin running the following business day. If the documents are mailed to the Director of the Department of Financial Institutions, they will be date stamped there and the statutory time will begin running the following business day. The Revenue Accounting Section of the Department of Financial Institutions also provides a validation date of its receipt of documents and funds. The Revenue Accounting Section's validation date stamp will be used only if that is the first date that it can be proven to be received by the Department. In order to assure proof of receipt of a filing, the Securities Division recommends that documents be sent by certified mail or hand delivered to the Securities Division offices.
Adopted January 1, 1991
Replaces Statement of Policy 83-31
JACK L. BEYERS, Securities Administrator
Prepared by William M. Beatty, Securities Examiner
FRANCHISE ACT INTERPRETIVE STATEMENT - 06
RE: RCW 19.100.010(11) - "FRANCHISE BROKER"
Question Presented:
Under what circumstances must a person offering or selling franchises register as a "franchise broker" as that term is defined in RCW 19.100.010(11)?
Statute:
RCW 19.100.010(11) defines "franchise broker" as "a person who directly or indirectly engages in the business of the offer or sale of franchises. The term does not include a franchisor, subfranchisor, or their officers, directors, or employees." (Emphasis added)
Discussion:
Under prior law, the Franchise Investment Protection Act required registration of both franchise brokers and selling agents. Most franchises were sold by registered selling agents directly employed by franchisors. Selling agents, contractors, or consultants who set up independent businesses to represent several franchisors were required to register as franchise brokers.
The 1991 legislature eliminated the registration requirement for franchise selling agents and expanded upon the definition of "franchise broker." While franchise brokers are still subject to registration, the legislature statutorily excepted from the definition of "franchise broker" the franchisor or subfranchisor, and their officers, directors and employees. If the person engaged in sales activities is not the franchisor, subfranchisor, or a bona fide officer, director or employee of the franchisor or subfranchisor, then the answer to the question presented turns on whether the person is "in the business of the offer or sale of franchises." Considerations in determining whether a person or company is in the business of the offer or sale of franchises include, without limitation:
- Independent Contractors. A person who is an independent agent, contractor or consultant representing one or more franchisors would generally be deemed to be a franchise broker;
- Commissions. A person who receives a commission or other transactional-based compensation in connection with the offer or sale of a franchise would generally be considered a franchise broker;
- The level of recurrence. A person who offers or sells two or more franchises is generally presumed to be a franchise broker;
Employees - A person who is an employee of a franchise broker is not "in the business" of offering or selling franchises.
Conclusion:
A person who engages "in the business" of offering or selling franchises is a franchise broker pursuant to RCW 19.100.010(11) unless the person is the franchisor, subfranchisor, or one of its officers, directors, or employees, or is employed by a franchise broker.
Adopted July 28, 1991
Replaces N/A
JACK L. BEYERS, Securities Administrator
Prepared by William M. Beatty, Securities Examiner
FRANCHISE ACT POLICY STATEMENT FPS - 7
RE: FRANCHISE OFFERINGS ON THE INTERNET
Question presented:
Is a franchisor permitted to make the offer and sale of unregistered franchises in
this state via the Internet?
Discussion:
NASAA Statement of Policy
The North American Securities Administrators Association (NASAA) adopted, effective May 3, 1998, a statement of policy that encourages states to take appropriate steps to exempt from franchise registration offers of franchises over the Internet, World Wide Web, or any other similar proprietary or common carrier electronic delivery system (Internet Offers). (See NASAA Reports ¶ 3,939)
Analysis
As pointed out in the NASAA resolution, the Internet is essentially a broad-based electronic communications system. For state franchise regulators, the issues presented by such a system are not dissimilar to those inherent in other methods of communication that cross state boundaries. Advertisements for franchise offerings not registered in the State of Washington frequently appear in national publications such as the Wall Street Journal. The Division typically takes no action with respect to these advertisements so long as the offering is registered in this state or the advertisement indicates, directly or indirectly, that the offering is not available to Washington residents. The statement of policy adopted by NASAA is consistent with this approach.
Conclusion:
Following the approach of the NASAA statement of policy, the Administrator will take no action to enforce the securities registration provisions of the Washington Franchise Investment Protection Act, Ch. 19.100 RCW, in connection Internet Offerings of franchises where:
A. The offer is made while the offering is registered in Washington or is made pursuant to an available and perfected exemption from such registration; or
B. If the franchise is not registered or exempt:
(1) The Internet Offer indicates, directly or indirectly, that the franchises are not being offered to the residents of Washington;
(2) The Internet Offer is not otherwise specifically directed to any person in this state by, or on behalf of, the franchisor or anyone acting with the franchisor’s knowledge; and
(3) No franchises are sold in Washington by or on behalf of the franchisor until the offering is registered and declared effective and the Washington Uniform Franchise Offering Circular has been delivered to the offeree before the sale and in compliance with the Washington Franchise Investment Protection Act (FIPA), Ch. 19.100 RCW.
This position pertains only to franchise registration issues. Internet offerings are still subject to the anti-fraud and other sections of FIPA. Any offering involving a material misstatement of facts or fraud is subject to regulatory enforcement action by the Division.
Adopted: August 18, 1999
Deborah R. Bortner, Securities Administrator
Prepared by: William M. Beatty, Senior Registration Attorney
