In Minnesota, the Securities Division of the Department of Commerce oversees franchise registrations and regulates franchise activity within Minnesota. The Division aims to protect the interests of both franchisors and franchisees as well as consumers.
Franchisors who desire to sell franchises within the state are required to register with the Securities Division unless they meet certain exemption requirements. These registrations must be renewed annually to remain compliant with Minnesota franchise laws. Many franchisors elect to work with an experienced attorney to help avoid costly mistakes in the registration process.
A vital part of the registration application from a franchisor is the franchise disclosure document, which is intended to provide information to potential franchisees so that they understand the type of investment they make when they are entering the franchise agreement.
Minn. Stat. §80C.04 outlines what must be included in the franchise disclosure document. The statement should provide data about the experience and financial situation of the franchisor as well as information about the terms of the franchise arrangement. More than twenty different requirements are listed in the statute, many of which line up with the FTC Amended Franchise Rule requirements for franchise disclosure documents. Some of the required pieces of information in the franchise disclosure document include:
The balance sheet disclosed must be audited by an independent certified public accountant. If the sheet is too outdated, it must be supplemented by an unaudited balance sheet and income statement and additional disclosures must be added to Item 21 and the exhibit containing the unaudited financials.
Minnesota allows franchise registration filing on paper or electronically through the Franchise e-File System. The fee for an initial registration is $400, and annual renewal costs between $200-300 depending on whether renewal requires amendment of the disclosure documents. Virtually every renewal includes material changes, so every franchisor pays the $300 renewal fee. The fee for a registration amendment is $100. If a renewal application is not filed on time, the franchisor may have to pay the full original registration fee as if they were filing a new franchise registration application. The State will still want to see redlined changes showing modifications made from the FDD previously filed with Minnesota.
In addition to the initial franchise registration paperwork, new franchisors should expect to submit:
Checks should be made out to the Minnesota Department of Commerce. Payment must be mailed to the Minnesota Department of Commerce, Securities Section, 85 7th Place East, Suite 280, Saint Paul, MN 55101, regardless of whether the application is filed electronically or by mail.
Businesses often create franchise arrangements without understanding the ramifications. Those who believe their transactions may put them in a situation where they are required to comply with Minnesota franchise law and registration requirements should consult a franchise lawyer to ensure their business is compliant. Taking care to follow franchise laws and registration requirements could put you in a better position to argue good faith efforts at compliance if problems arise. Call today to get started.