N.Y. GBS Law § 683 — New York Code / Act GBS / Article 33 / Section 683
Disclosure requirements
Status: in_force

§ 683. Disclosure requirements. 1. It shall be unlawful and prohibited\nfor any person to offer to sell or sell in this state any franchise\nunless and until there shall have been registered with the department of\nlaw, prior to such offer or sale, a written statement to be known as an\n"offering prospectus" concerning the contemplated offer or sale, which\nshall contain the information and representations set forth in and\nrequired by this section. Any uniform disclosure document approved for\nuse by any agency of the federal government or sister state may be\nutilized and sought to be registered, provided that said uniform\ndisclosure documents comply with the provisions of this article.\n  2. The offering prospectus sought to be registered with the department\nof law shall be filed with the department, accompanied by an application\nfor registration on forms prescribed by the department, and shall\ncontain the following:\n  (a) The name of the franchisor, the name under which the franchisor is\ndoing or intends to do business, and the name of any parent or\naffiliated company that will engage in business transactions with\nfranchisees.\n  (b) The franchisor's principal business address and the name and\naddress of its agent in this state authorized to receive process.\n  (c) The business form of the franchisor, whether corporate,\npartnership, or otherwise.\n  (d) Such information concerning the identity and business experience\nof persons affiliated with the franchisor as the department of law may\nby rule prescribe.\n  (e) A statement as to whether the franchisor and its principals,\nofficers, partners, directors, or any other person identified in the\napplication for registration:\n  (1) Has been convicted of a felony, or pleaded nolo contendere to a\nfelony charge, or held liable or enjoined in a civil action by a final\njudgment if such civil action involved fraud, embezzlement, fraudulent\nconversion or misappropriation of property.\n  (2) Is subject to any currently effective order of the United States\nsecurities and exchange commission or the securities administrator of\nany state denying the registration of or barring, revoking or suspending\nthe registration of such person as a securities broker or dealer, or\ninvestment advisor, or securities agent or registered representative, or\nis subject to any currently effective order of any national securities\nassociation or national securities exchange, as defined in the\nSecurities and Exchange Act of 1934, suspending or expelling such person\nfrom membership in such association or exchange.\n  (3) Is subject to a currently effective order or ruling of the federal\ntrade commission.\n  (4) Is subject to any currently effective injunctive or restrictive\norder relating to business activity as a result of an action brought by\na public agency or department, including, without limitation, actions\naffecting a license as a real estate broker or salesman.\n  Such statement shall set forth the court, date of conviction or\njudgment, any penalty imposed or damages assessed, or the date, nature\nand issuer of such order.\n  (f) The length of time the franchisor: (1) has conducted a business of\nthe type to be operated by the franchisees, (2) has granted franchises\nfor such business, and (3) has granted franchises in other lines of\nbusiness.\n  (g) The most recent financial statement of the franchisor, together\nwith a statement of any material changes in the financial condition of\nthe franchisor from the date thereof. The department of law may by rule\nor order prescribe (1) the form and content of financial statements\nrequired under this article, (2) the circumstances under which\nconsolidated financial statements shall be required, and (3) the\ncircumstances under which financial statements shall be audited by\nindependent certified public accountants.\n  (h) A statement of the franchise fee charged, the proposed application\nof the proceeds of such fee by the franchisor, and the formula by which\nthe amount of the fee is determined if the fee is not uniform and the\nsame in all cases.\n  (i) A statement describing any payments or fees other than franchise\nfees that the franchisee or subfranchisor is required to pay to the\nfranchisor, including royalties and payments of fees which the\nfranchisor collects in whole or in part on behalf of a third party or\nparties.\n  (j) A statement of the conditions under which the franchise agreement\nmay be terminated or renewal refused or repurchased at the option of the\nfranchisor.\n  (k) A statement as to whether, by the terms of the franchise agreement\nor by other device or practice, the franchisee or subfranchisor is\nrequired to purchase from the franchisor or his designee services,\nsupplies, products, fixtures or other goods relating to the\nestablishment or operation of the franchise business, together with a\ndescription and the terms and conditions thereof.\n  (l) A statement as to whether, by the terms of the franchise agreement\nor other device or practice, the franchisee is limited in the goods or\nservices offered by him to his customers.\n  (m) A statement of the terms and conditions of any financing\narrangements when offered directly or indirectly by the franchisor or\nhis agent or affiliate.\n  (n) A statement of any past or present practice or of any intent of\nthe franchisor to sell, assign, or discount to a third party any note,\ncontract, or other obligation of the franchisee or subfranchisor in\nwhole or in part.\n  (o) Any representation of estimated or projected franchisee earnings\nor income, together with a statement setting forth the data, methods and\ncomputations upon which such estimate or projection is based.\n  (p) A statement of any compensation or other benefit given or promised\nto a public figure arising, in whole or in part, from (1) the use of the\npublic figure in the name or symbol of the franchise, or (2) the\nendorsement or recommendation of the franchise by the public figure in\nadvertisements.\n  (q) A statement of the total number and location of franchises\npresently operating and proposed to be sold.\n  (r) A statement as to whether franchisees or subfranchisors receive an\nexclusive area or territory.\n  (s) A representation that the registered prospectus does not knowingly\nomit any material fact or contain any untrue statement of a material\nfact.\n  (t) Other information which the franchisor may desire to present.\n  (u) Other information or such additional disclosures related to the\noffer or sale of the franchise as the department of law may prescribe by\nrules or regulations promulgated under section six hundred ninety-four\nof this article as will afford prospective franchisees an adequate basis\nupon which to found their judgment.\n  (v) When the person filing the application for registration of an\noffering prospectus is a subfranchisor, the prospectus shall also\ninclude the same information concerning the subfranchisor as is required\nfrom the franchisor pursuant to this article.\n  3. Applications for registration of an offering prospectus shall be\nsigned and verified by the franchisor or by the subfranchisor in the\nsame manner provided in the civil practice law and rules for the\nverification of pleadings.\n  4. Every application by a franchisor for registration of an offering\nprospectus shall be accompanied by a copy of the typical franchise\ncontract or agreement proposed for use or in use in this state,\nincluding all amendments, deletions, variations, and supplements\nthereto.\n  5. Every application by a franchisor for registration of an offering\nprospectus shall be accompanied by such materials, data, records, or\nother information as the department may by rule require in connection\nwith its consideration of the application.\n  6. The offering prospectus shall recite in bold type of not less than\ntwelve-point that registration does not constitute approval,\nrecommendation, or endorsement by the department of law. The department\nmay require that the applicant set forth in its prospectus potentially\nadverse information in designated positions and in a type size\nacceptable to the department.\n  7. Unless otherwise provided by regulation issued by the department,\napplications to register the offering prospectus required by subdivision\none of this section shall be filed with the department of law at its\noffice in the city of New York prior to the offering of the franchise\ninvolved. No offer, advertisement, or sale of such a franchise shall be\nmade in or from the state of New York until the department has issued to\nthe franchisor or other offeror a letter stating that the offering\nprospectus sought to be registered has been accepted for filing and\nfiled. The department, not later than thirty days after such filing,\nshall issue such a letter or, in the alternative, a notification in\nwriting indicating the respect in which the application for registration\nor the proposed offering prospectus itself is deficient or otherwise\nfails to make adequate disclosure. A refusal to register an offering\nprospectus, and notification thereof, shall be forthcoming if the\ndepartment finds:\n  (a) That there has been a failure to comply with any of the provisions\nof this article or the rules of the department pertaining thereto.\n  (b) That the offer or sale of the franchise would constitute\nmisrepresentation to, or deceit or fraud of, prospective franchisees.\n  (c) That the application for registration of the offering prospectus\nor the proposed offering prospectus itself is incomplete in any material\nrespect or contains any statement which is, in light of the\ncircumstances under which it was made, false or misleading with respect\nto any material fact.\n  (d) That the franchisor's method of business includes or would include\nactivities which are illegal where performed.\n  (e) That a person identified in the application has been convicted of\nan offense described in subparagraph one of paragraph (e) of subdivision\ntwo of this section, is subject to an administrative order, or has had a\ncivil judgment entered against him involving the illegal offering of\nfranchises or securities, and the department determines that the\ninvolvement of the person in the sale or management of the franchise\ncreates an unreasonable risk to prospective franchisees.\n  (f) That the franchise offering sought to be registered is the subject\nof a permanent or temporary injunction entered under any federal or\nstate act applicable to the offering.\n  (g) That the franchisor has failed to pay the proper fee.\n  8. A franchise which is subject to registration under this article\nshall not be sold without first providing to the prospective franchisee,\na copy of the offering prospectus, together with a copy of all proposed\nagreements relating to the sale of the franchise at the earlier of (a)\nthe first personal meeting between the franchisor or its agent and the\nprospective franchisee, (b) at least ten business days prior to the\nexecution of a binding franchise or other agreement, or (c) at least ten\ndays prior to the receipt of any consideration in connection with the\nsale or proposed sale of a franchise. For the purposes of this chapter,\nthe words: (i) "first personal meeting" shall mean the first face to\nface meeting between a franchisor or franchisor's agent or any\nrepresentative or employee thereof and a prospective franchisee which is\nheld for the purpose of discussing the sale or possible sale of a\nfranchise; (ii) "other agreement" shall mean an agreement imposing a\nbinding legal obligation on such prospective franchisee, about which the\nfranchisor, franchise sales agent, or any agent, representative or\nemployee thereof, knows or should know, in connection with the sale or\nproposed sale of a franchise; and, (iii) "receipt of any consideration"\nshall mean the payment by a prospective franchisee, about which the\nfranchisor, franchise sales agent, or any agent, representative or\nemployee thereof, knows or should know, of any consideration in\nconnection with the sale or proposed sale of a franchise.\n  9. (a) A franchisor shall promptly notify the department in writing,\nby an application to amend the registered offering prospectus, of any\nmaterial change in the information contained in the prospectus as\noriginally submitted or amended. The department may further define by\nrule what is a material change for the purpose and circumstances under\nwhich an amendment of a registered prospectus shall be mandatory.\n  (b) An amendment to a registered offering prospectus filed after the\neffective date of the registration of the original offering prospectus,\nif the amendment is approved by the department, shall become effective\non such date the department may determine, having due regard for the\npublic interest and the protection of franchisees.\n  10. (a) Neither the fact that an application for registration of an\noffering prospectus under this article has been filed, nor the fact that\nsuch registration has become effective, constitutes a finding by the\ndepartment that any document filed under this article, including the\nregistered offering prospectus, is true, complete or not misleading.\nNeither any such fact nor the fact that an exemption is available for a\ntransaction means that the department has passed in any way upon the\nmerits or qualifications of, or recommended or given approval to, any\nperson, franchise, or transaction.\n  (b) It is unlawful to make or cause to be made to any prospective\npurchaser or offeree a representation inconsistent with paragraph (a) of\nthis subdivision.\n  11. No offer of a franchise shall be made except by the offering\nprospectus registered with the department of law pursuant to this\nsection. Any advertisement in whatever form, including periodicals or on\nradio or television, shall contain a statement that no offer of such\nfranchise is made except by such offering prospectus, and all such\nadvertising shall be consistent with the representations and information\nrequired to be set forth in such prospectus as hereinbefore in this\nsection provided.\n  12. In all literature employed in the offer and sale of a franchise\nand in all advertising in connection therewith, there shall be\ncontained, in easily readable print on the face thereof, a statement\nthat the filing of an application for registration of an offering\nprospectus or the acceptance and filing thereof by the department of law\nas required by this section does not constitute approval of the offering\nor the sale of such franchise by the department of law or the attorney\ngeneral of this state.\n  13. A person shall not offer to sell or sell a franchise in this state\non behalf of a franchisor or subfranchisor, except in transactions\nexempted under this article, unless the franchisor or subfranchisor and\nthe person file a franchise agent's application with the department of\nlaw on the form prescribed by the department, and the department issues\nan order of registration for such person. The department may prescribe\nrules relating to the qualifications, conduct, and denial, suspension,\nor revocation or registrations of franchise sales agents.\n  14. (a) Every franchisor or subfranchisor offering franchises for sale\nin this state shall keep and maintain a complete set of books and\nrecords and shall keep and maintain accounts of franchise sales in\naccordance with generally accepted accounting principles, and shall make\nand file with the department such reports as the department may by rule\nprescribe, including an annual report setting forth the franchises sold\nby it and the proceeds derived therefrom, and shall furnish to the\ndepartment such materials relating to the offer or sale of the franchise\nas it may by rule require. All such records are subject at any time to\nreasonable periodic, special, or other examinations by a representative\nof the department, within or without this state, as the department deems\nnecessary or appropriate in the public interest or for the protection of\ninvestors.\n  (b) The department may consider the opinions, appraisals, and reports\nof engineers, appraisers, or other experts which may be presented by an\napplicant or any interested party, on any question of fact concerning or\naffecting the franchises proposed to be offered and sold. In lieu of, or\nin addition to, such opinions, appraisals, and reports, the department\nmay have any or all matters concerning or affecting such franchises\ninvestigated, appraised, passed upon, and certified to it by engineers,\nappraisers, or other experts selected by it. The experts' cost of travel\nand lodging relating to such investigation, and the costs of experts'\nfees, shall be borne by the applicant and shall be paid before\neffectiveness of its registration, provided that the applicant shall\nhave agreed in writing with the department to bear such costs and fees,\nor shall have had the opportunity to establish that no good cause exists\nfor such investigation or expenditure, or shall have himself furnished\nthe desired information to the department.\n  (c) If information that the department deems necessary relating to the\nfranchise is requested by the department and is not furnished by the\napplicant, or the department deems information submitted to be\nunreliable or substantially incomplete, the department may investigate\nany or all matters concerning or affecting such franchise. The costs of\nall travel and lodging expenses relating to investigations outside of\nthis state shall be borne by the applicant and shall be paid before\neffectiveness of its registration.\n  15. The department may by rule require the filing and approval prior\nto use of any pamphlet, circular, form letter, advertisement, or other\nsales literature or advertising communication addressed to or intended\nfor distribution to prospective franchisees.\n