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In general, selling and offering a franchise is regulated by state and federal franchise laws. Registering a franchise impacts the sale and offer of a franchise, so it is important to know when registration is required. In Hawaii, franchisors are required to register before offering and selling franchises. Having to register before offering and selling a franchise can be frustrating for a franchisor because registration can take a long time and be expensive. As a result, franchisors are often stuck waiting for a registration to finalize, when they can be offering and selling their franchise.
Luckily, Hawaii has several exemptions from registration. These exemptions can be based on the different types of transactions or can be based on the characteristics of franchisors and potential franchisees. If one of these exemptions apply, then franchisors can avoid the registration process and sell their franchise a lot sooner.
The institutional franchisee exemption is available to franchisors when a sale or offer is made to an institution. For example, an offer or sale of a franchise to a bank, savings institution, trust company, investment company, pension or profit-sharing trust, or other financial institution or institutional buyer or broker-dealer is exempt. Haw. Rev. Stat. § 482E-4(a)(2). The exemption applies when the potential franchisee is acting for itself or as a fiduciary. Haw. Rev. Stat. § 482E-4(a)(2). Overall, Hawaii is less concerned about protecting these types of purchasers.
The out of state franchise exemption is available to franchisors when a state allows them to sell outside the state to non-residents. First, franchisors in Hawaii must ensure that potential franchisees are not domiciled in Hawaii. Haw. Rev. Stat. § 482E-4(a)(4). Second, the franchise business must not be operated in Hawaii. Haw. Rev. Stat. § 482E-4(a)(4).
The renewal of an existing franchise agreement exemption is available to franchisors that already have agreements with potential franchisees. Hawaii requires that there be no interruption in the operation of the franchise business by the potential franchisee and that there be no material change in the franchise relationship. Haw. Rev. Stat. § 482E-4(a)(5).
The sale to existing franchisee exemption is available to franchisors when an additional franchise is sold to a current franchisee. The sale of an additional franchise must be to a current franchisee of the same franchisor. Haw. Rev. Stat. § 482E-4(a)(6).
The sale by existing franchisee exemption is available to franchisors when the franchisor is not involved in the sale. In other words, if the sale is for the franchisee’s own account and the sale is an isolated sale and not part of a plan of distribution, then the franchisor may be exempt from registration. Haw. Rev. Stat. § 482E-4(a)(7).
The exemption by order depends on whether filings and disclosures would be material in determining whether the potential franchisee has a reasonable chance of success and whether the exemption is in the public interest. Haw. Rev. Stat. § 482E-4(b).
The sales by executors, trustees, etc. exemption is available to franchisors when a transaction is made by judicial officers. For example, transactions by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator are exempt. Haw. Rev. Stat. § 482E-4(a)(1).
Again, if an exemption applies, franchisors can skip the registration process. Keep in mind that these exemptions are specific to Hawaii and can be very different than federal exemptions. Additionally, there are some Hawaii exemptions that may impact disclosures, but not registration, and vice versa. Thus, it is important to consider how federal and state exemptions interact with each other when registering, selling, and offering a franchise.