FTC Raises Exemption Thresholds

Joe Fittante July 1st, 2020

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 $1,213,000, 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.

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