3.2.14 New York

Fees

*Renewal filings must be submitted within 120 days after your fiscal year end or New York may require the filing be resubmitted as a new initial filing with payment of the initial fee.

**Post-Effective Amendment filings must be submitted if you are making a material change to your FDD after your initial or renewal filing is approved.  Pre-Effective Amendment filings are submitted if you are making a material change to your FDD but your initial filing or renewal filing is not yet approved.  No further sales may be made in New York until the amended FDD is approved and the registration is effectively amended.

Notes

• New York recently began accepting filings via email as long as the paper copies of all the documents submitted are also sent to their offices. The filings fees are paid via check made payable to “New York State Department of Law”.
• New York requires audited financials for every initial and renewal filing.
• No deals may be closed in New York until the initial, renewal, or amendment filing is approved, and all New York prospects must be disclosed/redisclosed with the approved FDD. In limited circumstances you may be able to disclose a New York prospect while a renewal or amendment is pending – please contact your Spadea legal team for further direction.
• If you are a New York-based franchisor, you cannot sell anywhere until New York has approved your initial, renewal or amendment filing.
• Advertising – Any advertising that will be used by you to target prospects in New York, or will be published and used only in New York, must be filed with the state at least seven days prior to its first use. If we do not receive a comment or response from the state on the filing in those seven days, you are free to use the advertising.  We must file an Advertising Certification form, which we will provide to you for completion, with the advertising to certify there are “no statements inconsistent with the registration application” (the current one on file with the state) contained in the advertising.  All advertising must contain the following disclaimer language before we submit it to the state for review:

This advertisement is not an offering.  An offering can only be made by a prospectus filed first with the Department of Law of the State of New York.  Such filing does not constitute approval by the Department of Law.

• All franchise sales agents are required to register with the state by filing a Sales Agent Disclosure Form.
• Financial Assurance – In general, New York does not impose financial assurance conditions, but will instead require special Risks be added to your FDD if they find your financials to be insufficient. The state does, however, have the right to require financial assurance in the form of escrow, or may allow the posting of a surety bond, in cases where you may have “failed to make adequate financial arrangements to fulfill” your obligations to your franchisees.

Exemptions (from registration with the state and/or from disclosure with a specific prospect)

• Large Franchisors – exemption from registration only
  • There are two types of exemptions in this category:
    1. Discretionary – where you either (a) have net worth of at least $5,000,000, or (b) have net worth of at least $1,000,000 and is at least 80% owned by a corporation that has a net worth of at least $5,000,000
    2. Automatic – where (1) net worth of at least $15,000,000 or (2) net worth of at least $3,000,000 and is at least 80% owned by a corporation which has a net worth of at least $15,000,000
  • Net worth is calculated on a consolidated basis according to the most recent audited financials
  • A no-fee exemption filing is required for the discretionary exemption, but no filing or fees are required for the automatic exemption.
• Fractional Franchises – exemption from registration only
  • Offer or sale of a franchise involving adding a new product or service line to the existing business of a prospective franchisee where the following conditions are met:
    • The franchisee must have been offering similar products or services for at least 24 months prior to the sale
    • The new product or service must be “substantially similar” to products or services in franchisee’s existing business
    • The franchised business will be operated from the same location as the franchisee’s existing business
    • The parties anticipate the franchised business will not make up more than 20% of total annual sales of franchisee
    • You cannot “control” the franchisee
  • We must submit a notice filing to the state
  • Fee: $150 per sale
• Sales to Existing Franchisees – exemption from registration and disclosure
  • You may offer and/or sell to an existing franchisee where:
    • The franchisee has actively operated a franchise of yours for the prior 18 months, and
    • The franchisee is purchasing the franchise in order to operate the business and not for purposes of resale
  • There is no required filing, but we must report to the NYS Department of Law on a special form within 15 days of the sale. (No fee is required.)
• Renewal of an Existing Agreement – exemption from registration and disclosure (in certain circumstances*)
  • Renewal or extension of an existing franchise where there was no interruption in the operation of the franchised business by the franchisee
  • No filing or fees are required
  • *Check with your Spadea legal team for further direction.
• Isolated Sales – exemption from registration and disclosure
  • Sale of single franchise where:
    • You have not made separate offers to more than two persons
    • You are not granting the right to subfranchise
    • You are not paying a commission, directly or indirectly, for soliciting the franchisee in NY
    • You are domiciled in NY or have filed the consent to service of process with the department
  • Filing of the consent to service of process is only required if you are not domiciled in NY; no fee is required
• Sales by Existing Franchisees – exemption from registration only
  • Offer or sale of franchise by franchisee for its own account where:
    • Sale is an isolated sale and not part of distribution of franchises.
    • Sale is not effected by or through you, and
    • 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
  • No filing or fees are required
• Sales to Banks – exemption from registration and disclosure
  • Applies where the 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”
  • No filing or fees are required
• Franchise Expo Exemption – exemption that allows you to exhibit at the IFE trade show without registering with the state first
  • This is a temporary exemption available on a discretionary basis to you if you will be exhibiting at the IFE trade show in NYC
  • The exemption does not allow you to sell franchises anywhere in NY (including at the show) or to disclose a prospect in NY
  • Filing is required to attain this exemption which must include any advertising and promotional materials you will distribute at the IFE
  • Fees:

• Non-Franchisor Exemptions – The following exemptions are for atypical franchise offerings, are very rare, and in general, will not apply to you if you are an active franchisor with an FDD.
  • By Order
  • Credit Card Plans
  • Motor Fuel