Definition of Franchising
Franchising is a method of marketing and distributing goods and services. Franchises are offered and sold for many types of businesses, including services, retail trade, finance, real estate, transportation, and communications.
Minnesota law defines a franchise as a contract or agreement between two or more persons, express or implied and oral or written, that satisfies three conditions: the franchisee is granted the right to engage in the business of offering or distributing goods or services using the franchisor’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics; the franchisor and franchisee have a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise; and the franchisee pays, directly or indirectly, a franchise fee. Minn. Stat. § 80C.01, subd. 4(a)(1). All three elements must be present, so a bare trademark license paid for with a fee is not a Minnesota franchise unless the parties also share a community of interest in marketing.
The fee element is where most close calls are decided. A franchise fee is any fee or charge a franchisee or subfranchisor is required to pay for the right to enter into a business or to continue a business under a franchise agreement, including an initial capital investment fee, charges based on a percentage of gross or net sales whether or not called royalty fees, payments for goods or services, and training fees, subject to six exclusions, chief among them the purchase of goods at a bona fide wholesale price and the purchase, at fair market value, of supplies or fixtures necessary to the business. Minn. Stat. § 80C.01, subd. 9.
Two exclusions sit inside the definition itself. An arrangement requiring the franchisee to pay less than $100 on an annual basis is not a franchise at all, except for the retail motor vehicle fuel category, so no registration analysis follows. Minn. Stat. § 80C.01, subd. 4(c). A business operated under a lease or license on the premises of the lessor or licensor also falls outside the definition so long as the business is incidental to the business the lessor or licensor conducts on those premises, which expressly covers leased departments, licensed departments, and concessions. Minn. Stat. § 80C.01, subd. 4(b).
The trade name test is one of four independent routes to franchise status. Clause (a)(2) covers a right to market motor vehicle fuel at retail under the franchisor’s marks, and clause (a)(4) covers a manufacturer selling security systems through dealers or distributors in Minnesota that requires regular payments from the dealer or distributor as royalties or residuals. Minn. Stat. § 80C.01, subd. 4(a)(2), (4). A business that licenses no trademark can still be selling a franchise here.
A third arrangement also counts as a franchise: the sale or lease of products, equipment, chattels, supplies, or services to a purchaser for the purpose of enabling the purchaser to start a business, paired with one of three seller commitments. Those are a representation that the seller, lessor, or an affiliate will provide or help find locations for vending machines, racks, display cases, or similar devices, or currency operated amusement machines or devices, on premises that neither the purchaser nor the seller owns or leases; a representation that the seller will buy products the purchaser makes, produces, fabricates, grows, breeds, or modifies using, in whole or in part, the supplies, services, or chattels the seller sold; or a guarantee that the purchaser will derive income from the business exceeding the price paid to the seller. Minn. Stat. § 80C.01, subd. 4(a)(3). Sales of demonstration equipment, materials, or samples totaling $500 or less to any one person fall outside this category.
Read each of those three commitments narrowly, because each is a good deal narrower than its shorthand. The locations prong is a vending and rack route provision, not a general location assistance rule. The buy-back prong applies only where the sale is for the purpose of enabling the purchaser to start a business and the seller represents that it will purchase products the purchaser makes using, in whole or in part, the supplies, services, or chattels the seller sold. Minn. Stat. § 80C.01, subd. 4(a)(3)(ii). The third commitment is a guarantee that the purchaser will derive income from the business which exceeds the price paid to the seller, so the benchmark is the seller’s own price, and it counts only where the sale or lease is for the purpose of enabling the purchaser to start a business. Minn. Stat. § 80C.01, subd. 4(a)(3)(iii).
The phrase “assist the purchaser in finding locations” carries its own definition and a safe harbor. It means directly assisting the purchaser in finding locations, or referring the purchaser to a resource that assists in finding locations and is affiliated with the seller through common ownership, common control, a referral fee arrangement, or any other business relationship, and it does not include providing the purchaser a written list of resources so long as none of the listed resources is affiliated with the seller in any way. Minn. Stat. § 80C.01, subd. 19. The companion definition of “affiliate” is broad enough to reach parents, subsidiaries, holding companies, sister entities, and principals, so routing location help through a related company does not move you outside the prong. Minn. Stat. § 80C.01, subd. 20.
Selling territory rather than a single outlet does not take you outside the chapter either. An area franchise is a contract by which a subfranchisor is granted the right, for consideration, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor, and unless a provision specifically states otherwise, “franchise” includes “area franchise” throughout the Act. Minn. Stat. § 80C.01, subd. 7.
Franchise Registration & Regulation
Any proposed offer or sale of a franchise that meets the above definition may be subject to the registration and other requirements of the Minnesota Franchise Act, Minn. Stat. §§ 80C.01 to 80C.22, and the Department of Commerce franchise rules, Minn. R. 2860.0100 to 2860.9930. The rule range is not continuous: parts 2860.6100 through 2860.6500 were repealed, so a reader who follows the citation into the 6100s finds a repealed rule rather than a requirement.
The registration rule itself is short. “No person may offer or sell any franchise in this state unless there is an effective registration statement on file in accordance with the provisions of sections 80C.01 to 80C.22 or unless the franchise or transaction is exempted under section 80C.03.” Minn. Stat. § 80C.02. Filing an application does not authorize offers or sales: the commissioner of commerce registers the franchise upon compliance and a finding of no ground for denial, and the registration becomes effective only upon issuance of the commissioner’s order for registration. Minn. Stat. § 80C.05, subd. 2.
One common follow-on transaction is carved out of that timing rule. No registration need be in effect before the extension or renewal of an existing franchise, or the grant of an additional franchise to an existing franchisee, unless the extended, renewed, or additional franchise varies substantially from the franchise the franchisee already holds. Minn. R. 2860.1100, subp. 4.
Whether the Act reaches an out-of-state franchisor turns on the transaction, not on where the franchisor sits. The provisions on sales and offers to sell apply when a sale or offer to sell is made in Minnesota, when an offer to purchase is made and accepted in Minnesota, or when the franchise is to be located in Minnesota. Minn. Stat. § 80C.19.
The Act and the rules define franchises and exemptions; establish registration criteria, procedures, and fees; set requirements for public offering statements, Minn. Stat. § 80C.06; define prohibited practices, Minn. Stat. § 80C.13, and unfair and inequitable practices, Minn. Stat. § 80C.14 and Minn. R. 2860.4400; require every franchisor or subfranchisor offering franchises for sale in Minnesota to keep and maintain a complete set of books, records, and accounts of those sales, open at all times to inspection by the commissioner, Minn. Stat. § 80C.10; establish enforcement standards, Minn. Stat. § 80C.12; and provide for civil liability for violations, Minn. Stat. § 80C.17.
Much of the operating detail sits in the rules rather than the statute by design. The commissioner may promulgate rules and forms governing public offering statements, applications, financial statements, and annual reports, and may define terms whether or not they appear in the Act, and may classify franchises, persons, and matters and prescribe different requirements for different classes. Minn. Stat. § 80C.18, subd. 1. That classification power is why chapter 2860 carries special classifications for motor vehicle fuel franchises, hardware franchises, and franchises requiring initial unfinanced investment over $200,000.
The Disclosure Document
Minnesota takes an application for registration on the facing page prescribed by Minn. R. 2860.1200, subp. 4, accompanied by a proposed public offering statement, the $400 fee, and a consent to service of process where one applies. Either way the disclosure document filed with it is the Franchise Disclosure Document, not the Uniform Franchise Offering Circular. Since July 1, 2008 every franchisor must use the format required by the Federal Trade Commission’s amended Franchise Rule, which requires the cover page to carry the title “FRANCHISE DISCLOSURE DOCUMENT” in capital letters and bold type. 16 C.F.R. § 436.3(a). Minnesota’s own rule on alternative applications still uses the older UFOC vocabulary because it has not been amended since 1990: the commissioner may accept as an application for registration the Uniform Franchise Registration Application, and reserves the right to require alterations. Minn. R. 2860.3800. Minnesota’s statutory term for the filing remains the public offering statement.
The Franchise Rule prescribes what the disclosure document must contain. It must include financial statements audited by an independent certified public accountant, subject to the start-up phase-in described below, 16 C.F.R. § 436.5(u), and must attach a copy of all proposed agreements regarding the franchise offering, including the franchise agreement and any lease, options, and purchase agreements, 16 C.F.R. § 436.5(v). A start-up franchise system that does not yet have audited financial statements may phase them in, beginning with an unaudited opening balance sheet in its first partial or full fiscal year selling franchises, so unaudited statements from a new system are permitted rather than a red flag, though they also mean no audited track record exists yet. 16 C.F.R. § 436.5(u)(2). The document ends with two copies of a detachable acknowledgment of receipt, and you should keep the second copy. 16 C.F.R. § 436.5(w).
Minnesota imposes parallel requirements through the public offering statement. The statement must contain an audited balance sheet and income statement, though the commissioner may waive the audit requirement. Minn. Stat. § 80C.04, subd. 1(g). It must also include a copy of the entire franchise contract or agreement proposed for use, including all amendments, and the financial statements must be an actual part of the statement rather than a separate document. Minn. R. 2860.3500, subps. 15, 16.
Two delivery clocks run at once. Federally, the franchisor must furnish its current disclosure document at least 14 calendar days before you sign a binding agreement or make any payment, and a further seven calendar days apply when the franchisor unilaterally and materially alters the agreement, though changes you initiate do not restart that clock. 16 C.F.R. § 436.2. In Minnesota, a person offering or selling a franchise subject to registration must present the current public offering statement together with a copy of all proposed agreements at least seven days before you sign any agreement or pay any consideration, whichever comes first, and must obtain a signed receipt and keep it, subject to inspection by the commissioner, for three years. Minn. Stat. § 80C.06, subd. 5. The earlier trigger controls.
Advertising a franchise carries its own filing step. One copy of each advertisement offering a franchise subject to registration must be filed with the commissioner at least five business days before first publication, and if the commissioner does not disallow it within three business days it may be published, with no formal approval issued. Minn. R. 2860.4200. No advertisement may refer to the franchise as an assurance of earnings or profits, as a safe investment, or as free from loss, carry projections or statements of income from operating the franchise, or quote an opinion of counsel without stating counsel’s name and address. Minn. R. 2860.4100, subp. 1.
Keeping a Registration in Effect
An application for registration is made by filing a proposed public offering statement with the commissioner, accompanied by a $400 fee. Minn. Stat. § 80C.04, subd. 1. Two features of the application process are easy to miss. If no activity occurs on the application for 120 days, the commissioner may declare the application withdrawn by order, so a franchisor that pays the fee and lets the file go quiet can lose it. Minn. Stat. § 80C.04, subd. 3. On the other side, any document filed under the Act within the prior two years may be incorporated by reference in a later application to the extent it is still accurate. Minn. Stat. § 80C.04, subd. 2.
A registration is effective for 12 months from the date the commissioner’s order is issued, and the registrant must file a report before the end of that period, accompanied by a $200 fee. Minn. Stat. § 80C.08, subd. 1. The filing is an annual report, not a renewal, and chapter 80C has no renewal filing. The deadline changed effective January 1, 2023, applicable to initial registrations filed on or after that date, replacing the former rule that ran 120 days after the registrant’s fiscal year end. Do not confuse the report deadline with a separate obligation that survives: financial statements are due no later than the 120th day following the end of the franchisor’s fiscal year. Minn. R. 2860.2500, subp. 3.
Missing the report has a defined consequence. Failure to file the annual report and pay the fee is cause for cancellation of the registration, and a cancelled registration may be reinstated at a later date after the report is filed and the fee paid. Minn. Stat. § 80C.08, subd. 2.
A registrant must also notify the commissioner within 30 days after any material change in the information on file, by an application to amend the registration accompanied by a $100 fee, and the amendment becomes effective only when the commissioner issues an order amending the registration. Minn. Stat. § 80C.07.
Chapter 2860 was reopened in 2024. Parts 2860.1200, 2860.2200, and 2860.2500, which carry the registration, amendment, and annual report filing requirements and their fees, were published electronically November 6, 2024 with statutory authority restated to include Minn. Stat. § 80A.82 alongside § 80C.18. Minn. R. 2860.1200, subp. 4. No part was added, repealed, or renumbered, so the 2860.0100 to 2860.9930 range is unaffected.
Termination, Non-Renewal, and Transfer
The Act and the rules also govern the relationship after registration. You may not terminate or cancel a franchise except for good cause, which the statute defines as failure by the franchisee to substantially comply with the material and reasonable franchise requirements imposed by the franchisor, and only after written notice setting forth all the reasons at least 90 days in advance with a 60-day cure period, except that notice is effective immediately for voluntary abandonment, a conviction directly related to the franchised business, or an uncured default that materially impairs the goodwill associated with the franchisor’s marks after 24 hours’ written notice to cure. Minn. Stat. § 80C.14, subd. 3.
Non-renewal runs on a longer clock. Unless the failure to renew is for good cause as defined in subdivision 3, paragraph (b), and the franchisee has failed to correct the reasons for termination as required by subdivision 3, a franchisor may not fail to renew unless the franchisee has been given written notice of the intention not to renew at least 180 days in advance of the expiration of the franchise and has been given an opportunity to operate the franchise long enough to recover the fair market value of the franchise as a going concern, measured from the date of the failure to renew. Minn. Stat. § 80C.14, subd. 4. That carve-out does not reach conversions: no franchisor may refuse to renew a franchise if the refusal is for the purpose of converting the franchisee’s business premises to an operation that will be owned by the franchisor for its own account. Minn. Stat. § 80C.14, subd. 4. It is also unfair and inequitable to unreasonably withhold consent to an assignment, transfer, or sale of the franchise where the substituted franchisee meets the present qualifications and standards required of that franchisor’s franchisees. Minn. Stat. § 80C.14, subd. 5.
The rule adds several terms a franchise agreement may not impose. It is unfair and inequitable to require a franchisee to waive the right to a jury trial or to waive rights to any procedure, forum, or remedies provided for by the laws of the jurisdiction, or to consent to liquidated damages, termination penalties, or judgment notes, though the rule expressly does not bar an exclusive arbitration clause; to require a franchisee to assent to a release, assignment, novation, or waiver relieving anyone from liability imposed by the Act, though voluntary settlement of disputes is preserved; to enforce any unreasonable covenant not to compete after the franchise relationship ends; or to require a security deposit except to secure against damage to property, equipment, inventory, or leaseholds. Minn. R. 2860.4400.
A violation of the unfair practices section is enjoinable by a court of competent jurisdiction, and irreparable harm to the franchisee is presumed where the violator was required to register under section 80C.02 and failed to do so. Minn. Stat. § 80C.14, subd. 1. That presumption is the practical leverage a franchisee holds against an unregistered franchisor.
Waiver and choice-of-law clauses fare badly here. Any condition, stipulation, or provision, “including any choice of law provision,” that binds a person who was a Minnesota resident (or a Minnesota-organized partnership or corporation) when acquiring the franchise, or that binds a person acquiring a franchise to be operated in Minnesota, to waive compliance with sections 80C.01 to 80C.22 or any rule or order under them, is void. Minn. Stat. § 80C.21. The words “including any choice of law provision” were added by Laws 1989, ch. 198, § 2, so decisions applying the pre-amendment text no longer reflect the statute.
Civil Liability
A person who violates any provision of the chapter, or any rule or order under it, is liable to the franchisee or subfranchisor, who may sue for damages, rescission, or other relief the court deems appropriate. Minn. Stat. § 80C.17, subd. 1. A successful claim recovers actual damages together with costs and disbursements plus reasonable attorney’s fees, which is what makes a modest franchise claim economically viable. Minn. Stat. § 80C.17, subd. 3. Liability extends jointly and severally to controlling persons, partners, principal executive officers, directors, and employees who materially aid the violation, subject to a defense for a person who had no knowledge of or reasonable grounds to know the facts giving rise to liability. Minn. Stat. § 80C.17, subd. 2. No action may be commenced more than three years after the cause of action accrues. Minn. Stat. § 80C.17, subd. 5.
Commerce Department Enforcement Actions
The Minnesota Department of Commerce investigates complaints against companies selling franchises, including the business opportunity ventures the franchise definition sweeps in. The commissioner may “make public or private investigations within or without this state as the commissioner considers necessary to determine whether any person has violated or is about to violate any law, rule, or order related to the duties and responsibilities entrusted to the commissioner.” Minn. Stat. § 45.027, subd. 1(a)(1).
Commerce does not have to wait for a completed violation. The commissioner may issue a cease and desist order and may deny, suspend, or revoke a registration, amendment, or exemption “with or without prior notice or hearing” on findings that include a person “engaging or about to engage in false, fraudulent or deceptive practices” in connection with the offer and sale of a franchise, a financial condition that “would adversely affect” the franchisor’s ability to fulfill its obligations under the franchise agreement, a method of business that “would include activities which are illegal where performed,” and a method of sale or franchise term that “is or would be unfair or inequitable to franchisees.” Minn. Stat. § 80C.12, subd. 1. The enforcement predicate also reaches the commissioner’s rules and orders, not the statute alone. The 2026 amendment renumbered those grounds from paragraphs (a) through (g) to clauses (1) through (7) and restructured the disqualifying-person ground: its civil-judgment reach was restated as being held liable in a civil action by final judgment, its cross-references to section 80C.04 were corrected to subdivision 1, paragraph (e), and its reach was extended to a person with a civil or criminal action pending. Any older pin cite to paragraphs (a) through (g) is stale.
Because the commissioner may act without prior notice or hearing, your protection is the hearing request. An order entered without a hearing must state its reasons and either set a hearing no later than 20 days from the date of the order or specify that on written request the matter will be heard within 15 days of the request, and if no hearing is requested within 30 days of service and none is ordered, the order remains in effect until modified or vacated. Minn. Stat. § 80C.12, subd. 2. The commissioner may instead issue an order to show cause requiring you to appear and show cause why an order should not issue. Minn. Stat. § 80C.12, subd. 3. In any proceeding under the Act, the burden of proving an exemption or exception from a definition is on the person claiming it. Minn. Stat. § 80C.12, subd. 4.
Much of the enforcement machinery sits outside chapter 80C. Section 80C.15 was repealed in 1987, and the commissioner’s general authority now runs through Minn. Stat. § 45.027, which reaches chapter 80C because Minn. Stat. § 45.011 defines the commissioner’s duties to cover chapters 45 to 80C and 80E to 83. Under that section the commissioner may bring an injunction action in district court or refer the matter to the attorney general or a county attorney, may issue a cease and desist order that becomes permanent if no hearing is requested within 30 days of service, may impose a civil penalty up to $10,000 per violation, and may issue a stop order denying effectiveness to, or suspending or revoking, any registration. Minn. Stat. § 45.027, subds. 5, 5a, 6, 8.
The Act carries its own penalties on top of that. A person who violates section 80C.02, 80C.06, 80C.09, 80C.13, or 80C.14 is subject to a fine of not more than $2,000 for each violation, and a person who fails to comply with a final judgment or order issued for a violation of the Act is subject to a fine of not more than $25,000, both imposed in a civil action brought by the attorney general. Minn. Stat. § 80C.16, subd. 2. A willful violation of the Act, and any device, scheme, or artifice to defraud in connection with the offer, purchase, or sale of a franchise, is punishable by a fine of not more than $10,000 or imprisonment of not more than five years, or both, and those penalties do not displace any other criminal statute. Minn. Stat. § 80C.16, subd. 3.
Other Enforcement & Information Assistance
In addition to the regulation done by the State of Minnesota, the United States Federal Trade Commission has regulatory authority over sellers of franchises and business opportunities. Section 5 of the Federal Trade Commission Act declares unfair or deceptive acts or practices in or affecting commerce unlawful and directs the Commission, whenever it has reason to believe a seller is violating that prohibition and it appears that a proceeding would be in the interest of the public, to issue and serve an administrative complaint. 15 U.S.C. § 45. The FTC’s disclosure rules come from a different section: they were prescribed under Section 18, which authorizes rules that “define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” and is the Commission’s only source of authority to define such practices by rule. 15 U.S.C. § 57a. Once such a rule takes effect, violating it is itself an unfair or deceptive act or practice in violation of Section 5.
There is no longer a single federal Franchise and Business Opportunity Rule. The FTC divided its original rule in 72 Fed. Reg. 15444 (Mar. 30, 2007), leaving franchises under the Franchise Rule, 16 C.F.R. part 436, and business opportunities under what became the Business Opportunity Rule, 16 C.F.R. part 437, adopted in final form at 76 Fed. Reg. 76816 (Dec. 8, 2011) and effective March 1, 2012. The Business Opportunity Rule requires the seller to furnish the required disclosures in writing at least seven calendar days before the purchaser signs or pays, as against 14 calendar days on the franchise side, and a deal that is a franchise under part 436 is exempt from part 437 except for two narrow part 436 exemptions. 16 C.F.R. §§ 437.2, 437.8.
The federal rule does not displace Minnesota registration. The FTC states that it does not intend to preempt the franchise practices laws of any state or local government except to the extent of an inconsistency, and that a law is not inconsistent if it affords prospective franchisees equal or greater protection, “such as registration of disclosure documents or more extensive disclosures.” 16 C.F.R. § 436.10(b). So a franchisor selling here prepares one Franchise Disclosure Document and registers it in Minnesota. Compliance with the document does not end federal exposure either: the Commission does not approve or express any opinion on the legality of any matter a franchisor must disclose, and franchisors may have additional obligations to impart material information outside the disclosure document under Section 5. 16 C.F.R. § 436.10(a).
The federal rule carries its own dollar-denominated exemptions, adjusted for inflation effective July 12, 2024 to a $735 minimum payment, a $1,469,600 large franchise investment, and a $7,348,000 large franchisee, with the next quadrennial adjustment due in 2028. 89 Fed. Reg. 57077 (July 12, 2024). Those are federal exemptions from the disclosure obligation and are separate from the Minnesota registration exemptions, so a franchisor exempt federally may still owe Minnesota registration. Beyond the exemptions written into the rule, a person to whom a Section 18 rule applies may petition the Commission for an exemption, and a pending petition does not suspend the rule. 15 U.S.C. § 57a(g).
One limit matters if you are the buyer: courts have held there is no private right of action to enforce the Franchise Rule. Holloway v. Bristol-Myers Corp., 485 F.2d 986 (D.C. Cir. 1973), held there is no implied private right of action under the FTC Act, and Days Inn of America Franchising, Inc. v. Windham, 699 F. Supp. 1581 (N.D. Ga. 1988), held that no private right of action exists to enforce the Franchise Rule. The rule is enforced by the FTC, and a defrauded Minnesota buyer’s damages claim runs under Minn. Stat. § 80C.17.
If you believe a franchisor misrepresented an offering, report it to the FTC at ReportFraud.ftc.gov. The FTC enters those reports into the Consumer Sentinel Network, which the agency describes as “free and available to any federal, state or local law enforcement agency” and also available to select international authorities, and whose report categories include “Business Opportunities and Work-at-Home Schemes.” The National Fraud Information Center named in older franchise guidance no longer operates under that name: the National Consumers League launched it in 1992 and relaunched it as Fraud.org in February 2013, and the League remains a listed Consumer Sentinel data contributor.
Along with its enforcement activities, the FTC publishes guidance for buyers and sellers, including its Franchise Rule Compliance Guide and the consumer publication A Consumer’s Guide to Buying a Franchise, which a disclosure document’s cover page must point buyers to. 16 C.F.R. § 436.3(e)(4). Those materials now discuss a buyer’s pre-sale disclosure rights under the Franchise Rule or the Business Opportunity Rule rather than under the former combined rule. The FTC publishes its enforcement actions in the Legal Library’s Cases and Proceedings index, where entries name the parties and typically carry an FTC matter or file number, plus a docket number when the case is an administrative adjudicative proceeding, federal court lawsuits are searchable by civil action number, and the index filters by industry, including Franchises, Business Opportunities, and Investments.
Exemptions
There are eight registration exemptions available under Minn. Stat. § 80C.03.
The eight are these. First, the offer or sale of a franchise owned by that franchisee, or of the entire area franchise owned by the selling subfranchisor, if the sale is not effected by or through a franchisor, capped at one sale in any 12 consecutive months of a franchise or area franchise granted by a single franchisor, and a sale is not effected by or through a franchisor merely because the franchisor has a right to approve or disapprove a different franchisee. Minn. Stat. § 80C.03(a). Second, any transaction by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian or conservator, which reaches any transaction by those persons and not only sales. Minn. Stat. § 80C.03(b).
Third, any offer or sale to a banking organization, financial organization, or life insurance corporation as those terms are defined in Minn. Stat. § 345.31, which covers banks, trust companies, savings banks, safe deposit companies, private bankers, savings associations, credit unions, industrial loan and thrift companies, and investment companies engaged in business in Minnesota, along with associations and corporations, including fraternal benefit societies, transacting the business of insurance on the lives of persons within Minnesota. Minn. Stat. § 80C.03(c). Fourth, securities currently registered in Minnesota under chapter 80A. Minn. Stat. § 80C.03(d).
Fifth, a single isolated sale of a franchise, which is not self-executing. It excludes area franchises and imposes four conditions: no more than one sale under the exemption in any 12 consecutive months; no advertising to the general public and no general solicitation by mail or telephone; deposit of all franchisee fees within two days of receipt in an escrow account with a Minnesota bank until the franchisor’s pre-opening obligations are performed, which the commissioner may waive on a showing of good cause; and written notice to the commissioner no later than ten business days before the sale. Minn. Stat. § 80C.03(e). Missing the escrow or the notice forfeits the exemption.
Sixth, the offer or sale of a fractional franchise, which is a franchise relationship in which the franchisee or any of its principal officers or directors has been in that type of business for more than two years and the parties anticipated, or should have anticipated, at the date of the agreement that sales from the relationship would represent no more than 20 percent of the franchisee’s dollar sales volume. Minn. Stat. § 80C.01, subd. 18. The test keys on what the parties anticipated, not on sales the franchisee actually makes. Seventh, the offer or sale of a franchise to a resident of a foreign state, territory, or country who is neither domiciled nor actually present in Minnesota, if the franchise business is not to be operated wholly or partly here and the sale does not violate that jurisdiction’s law. Minn. Stat. § 80C.03(h). Eighth, any transaction the commissioner exempts by rule or order as not being within the purposes of the chapter and whose registration the commissioner finds is not necessary or appropriate in the public interest or for the protection of investors. Minn. Stat. § 80C.03(g).
The Department’s own rule narrows two of the eight: the paragraph (a) exemption is available to franchisees only, and the paragraph (d) securities exemption is available only when the franchise is in fact registered as a security in Minnesota. Minn. R. 2860.0200. Because the burden of proving an exemption rests on the person claiming it, consult a knowledgeable attorney before relying on one.
Franchising in Other States
Although many states regulate franchises in a manner similar to Minnesota, each state’s laws are different. Washington, for example, defines by statute when an offer or sale is made in that state, reaching an offer directed into the state and received there, an offer originating there that violates the destination jurisdiction’s law, a resident prospect, or a franchise to be operated wholly or partly there, while carving out general advertising in a publication with more than two-thirds out-of-state circulation and broadcasts originating outside the state. Wash. Rev. Code § 19.100.020. You can therefore trigger another state’s registration duty without leaving Minnesota, and registering here satisfies Minnesota only. Franchisors who plan to offer or sell franchises in other states should check with the appropriate officials in those states regarding their franchising laws and requirements.
Interpretive Opinions
Under Minn. Stat. § 80C.18, subd. 2, the commissioner of commerce may, upon request and upon payment of a fee of $50, honor requests for interpretive opinions relating to sections 80C.01 to 80C.22, a range that covers whether a business being offered is a franchise, whether registration is required, and whether an exemption is available. Issuance is discretionary, so paying the fee buys consideration of the request rather than an entitlement to an opinion. The opinion is also narrow: it applies only to the transaction identified in the request and may not be relied upon in connection with any other transaction, and because the burden of proving an exemption or exception to any definition is on the person claiming it, the request must clearly set forth the basis on which nonapplicability of the Act is contended and be accompanied by all pertinent documentation. Minn. R. 2860.0300.
Fees
Minnesota sets its franchise filing fees by statute: $400 with the application for registration, Minn. Stat. § 80C.04, subd. 1; $200 with the annual report, Minn. Stat. § 80C.08, subd. 1; $100 with an application to amend a registration, Minn. Stat. § 80C.07; and $50 with a request for an interpretive opinion, Minn. Stat. § 80C.18, subd. 2.
Questions & Further Information
Questions concerning franchise registration go to the Minnesota Department of Commerce, whose franchises page links two systems you will need. ComOnline is the Department’s electronic franchise filing system, used to search franchisor information, view the status of a franchise’s registration, and register or renew a franchise. CARDS, the Commerce Actions and Regulatory Documents Search, holds ten years of public franchise registration information and documents.
The Minnesota Franchise Act is published at Minn. Stat. ch. 80C, and the rules at Minn. R. ch. 2860. The NASAA Franchise Registration and Disclosure Guidelines, which replaced the UFOC Guidelines on July 1, 2008 and attach Forms A through F, download from a link on the Commerce franchises page.
CREDITS: This article began as an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Twenty-eighth Edition, January 2010, written by Charles A. Schaffer, Madeline Harris, and Mark Simmer. It has since been rewritten and updated against current Minnesota and federal primary law.
