Those franchisors who rely on exemptions from the disclosure requirements of the Amended FTC Rule to complete franchise transactions should be aware that effective July 1, 2020, it became a bit harder to meet the sophisticated franchisee exemption and the large investment exemption, but a bit easier to meet the required payments exemption.
Sophisticated Franchisee Exemption
The net worth component of the sophisticated franchisee exemption increased from $5,715,500 to $6,165,500. However, the second component of this exemption requiring 5 years’ of business experience remained unchanged.
Large Investment Exemption
Likewise, the amount required to meet the large investment exemption increased from $1,143,100 to $1,233,000, excluding the cost of unimproved land and any franchisor or affiliate financing. As a reminder, there is a specific form the franchisee must sign to qualify for this exemption.
Required Payment Exemption
Last, and in a bit of good news for those franchisors who rely on the required payment exemption from the Amended FTC Rule, the amount of required payments increased from $570 to $615. Accordingly, any transaction where the amount of required payments or commitments to make a required payment before or within 6 months after the franchised business opens is less than $615 will be exempt from the disclosure requirements of the Amended FTC Rule.