Franchisees in Illinois have to play by an intricate set of rules encompassing regulation by both state and federal government, which both impact franchise laws.
In Illinois, the sale of a franchise is regulated by the Illinois Franchise Disclosure Act of 1987 (the “Act”). Before selling a franchise, the seller must register the franchise with the Illinois Attorney General, pay a $500 registration fee, file a Franchise Disclosure Document with Illinois Addenda, and file related documents including a Uniform Franchise Registration Application, Franchisor’s Costs and Sources of Funds, Uniform Consent to Service of Process, Franchise Seller Disclosure Form, Guarantee of Performance, and Consent of Accountants. But franchisors aren’t off the hook after the initial registration; the Act requires franchisors to file an annual report, updating their disclosure statement with any material changes. Failure to comply with the Illinois Franchise Disclosure Act can result in criminal prosecution and civil penalties of up to $50,000 per violation.
The federal government doesn’t regulate the franchise/franchisor relationship or require registration, but the Federal Trade Commission’s Franchise Rule does require franchisors to provide prospective franchise purchasers with a Franchise Disclosure Document at least ten days before sale that gives the purchaser material information on 23 different subjects that bear on the transaction. The Federal Trade Commission’s Franchise Rule does not preempt state franchise laws unless the state laws fail to provide franchisees with protection that is equal to or greater than the protection offered by the FTC Rule. In other words, the FTC Rule sets a minimum standard for franchise disclosure documents, and states are permitted to add additional protections by requiring more extensive disclosures if they see fit.
An experienced franchise law specialist can help you navigate the endless sea of state and federal rules and regulations so you can focus your attention on the success of your business.