Iowa is classified as a business opportunity state, and its laws relating to the sale or offering of business opportunities are found under its Business Opportunity Promotions Law, Iowa Code §§ 551A.1 et seq. (the “Business Opportunity Law”). Under the Business Opportunity Law, Iowa business-opportunity sellers are required to make written disclosures to prospective business-opportunity purchasers before selling or offering to sell a business opportunity. Business-opportunity sellers are additionally required to file an irrevocable consent with the state that appoints the secretary of state as the seller’s agent for service of process.
However, under § 551A.4(b), franchisors are exempt from the duties and liabilities imposed on business-opportunity sellers under the Business Opportunity Law, if the franchisor delivers to the franchisee either (1) a franchise offering circular prepared in accordance with guidelines adopted by the North American Securities Administrators Association (NASAA); or (2) a Franchise Disclosure Document (FDD) prepared in accordance with the Federal Trade Commission Amended Franchise Rule, 16 C.F.R. §§ 436.1 et seq. (the “FTC Rule”).
But delivery of either of the two documents mentioned above must be timely. To be exempted from the Business Opportunity Law, the franchisor must deliver its FDD or a document prepared in accordance with the NASAA guidelines either (1) before or during the first face-to-face franchisor-franchisee meeting that is held to discuss the offer or sale of the franchise; (2) fourteen days prior to the execution of a franchise agreement or other binding legal obligation on the franchisee; or (3) fourteen days prior to receipt of payment by the franchisee in connection with the offer or sale of the franchise.
Thus, franchisors in Iowa are exempt from the Business Opportunity Law if they deliver a validly issued FDD to a franchisee before meeting face-to-face, or fourteen days before the execution of a legally binding agreement with the franchisee, or payment by the franchisee in connection with the offer or sale of the franchise. Iowa’s Business Opportunity Law should not cause franchisors to fret, as the FTC Rule already requires Iowa franchisors to disclose a validly issued FDD to a prospective franchisee prior to entering into a franchise agreement or accepting any payments from an Iowa franchisee. Thus, so long as Iowa franchisors are compliant with the FTC Rule, they are likely to be exempt from the Business Opportunity Law.