Connecticut is classified as a business opportunity state. Under the Business Opportunity Investment Act, Conn. Gen. Stat. §§ 36b-60 et seq. (the “Business Opportunity Act”), a seller of a business opportunity must register with the State of Connecticut Department of Banking Securities and Business Investment Division (the “Department of Banking”) before offering or selling that business opportunity in the state. However, under Conn. Gen. Stat. § 36b-61(2)(D), “sales of marketing programs,” (e.g., sales of franchises) are specifically exempt from the Business Opportunity Act’s provisions if the franchises are sold in conjunction with the licensing of a trademark or service mark registered with the United States Patent and Trademark Office (USPTO). Thus, by complying with the necessary filing requirements, Connecticut franchisors with a federally registered trademark or service mark are generally exempted from compliance with the Business Opportunity Act’s other provisions.
Franchisors in Connecticut who have registered their trademark or service mark with the USPTO on or after October 1, 1996, can exempt themselves from compliance with the Business Opportunity Act by filing an exclusion notice with the Department of Banking prior to offering or selling a franchise in the state. Connecticut does not require a particular format that the notice must take; however, it is recommended that it be sent in the form of a letter and include the following: (1) the name of the franchise; (2) the business address of the franchise; (3) the date the franchise was formed; (4) a copy of the trademark or service mark certificate; (5) a statement requesting exclusion under § 36b-61(2)(D) of the Business Opportunity Act; and (5) a copy of the trademark or service mark licensing agreement (if the trademark or service mark is not directly owned by the franchisor). There is no fee associated with the filing of this notice, and franchisors are generally only required to file it once. A filing of a subsequent notice may be necessary if, after the first filing, there has been a change in trademark, service mark, or franchisor information. Once the exclusion notice is acknowledged and granted by Department of Banking, the franchisor is exempt from complying with the other provisions of the Business Opportunity Act.
For franchisors in Connecticut who do not have a trademark or service mark registered with the USPTO, they cannot file an exclusion notice under § 36b-61(2)(D) and must register as a seller of a business opportunity under the Business Opportunity Act. This requires franchisors to file an application with the Department of Banking, along with a consent to service of process form that appoints the “Banking Commissioner” as the franchisor’s agent for service of process, for a fee of $400. Franchisors must also submit their Franchise Disclosure Document (FDD) and provide a bond or proof of a trust account of at least $50,000.
In addition to the Business Opportunity Act, Connecticut further regulates the franchisor-franchisee relationship through the Connecticut Franchise Act, Conn. Gen. Stat. §§ 42-133e–133g (the “Franchise Act”). The Franchise Act governs the relationship between franchisors and franchisees upon termination or renewal of the franchise agreement, and gives franchisees the right to bring suit against a franchisor for violation of the Franchise Act’s provisions.
Compliance with state and federal franchise laws compels franchisor-awareness of their substance and effect on business operations and relationships. A franchise attorney is an excellent resource to provide clarity to applicable Connecticut franchise laws and registration provisions and to ensure compliance on an ongoing basis. To avoid being subject to Connecticut’s Business Opportunity Act, the exclusion notice must be complete and accurate. Failure to comply could result in penalties and liability in civil actions filed by franchisees, as well as other substantial losses. To help avoid the negative ramifications of these violations, contact a seasoned franchise lawyer today and start working on franchising your business.