NY Gen Bus L § 683 (2021)
2021 New York Laws GBS - General Business Article 33 - Franchises 683 - Disclosure Requirements.

§ 683. Disclosure requirements. 1. It shall be unlawful and prohibited for  any  person  to  offer  to sell or sell in this state any franchise unless and until there shall have been registered with the department of law, prior to such offer or sale, a written statement to be known as  an "offering  prospectus"  concerning the contemplated offer or sale, which shall contain the information  and  representations  set  forth  in  and required  by  this section. Any uniform disclosure document approved for use by any agency of the federal  government  or  sister  state  may  be utilized  and  sought  to  be  registered,  provided  that  said uniform disclosure documents comply with the provisions of this article.   2. The offering prospectus sought to be registered with the department of law shall be filed with the department, accompanied by an application for registration on  forms  prescribed  by  the  department,  and  shall contain the following:  (a) The name of the franchisor, the name under which the franchisor is doing  or  intends  to  do  business,  and  the  name  of  any parent or affiliated company  that  will  engage  in  business  transactions  with franchisees.  (b)  The  franchisor's  principal  business  address  and the name and address of its agent in this state authorized to receive process.  (c)  The  business  form  of  the   franchisor,   whether   corporate, partnership, or otherwise.  (d)  Such  information concerning the identity and business experience of persons affiliated with the franchisor as the department of  law  may by rule prescribe.  (e)  A  statement  as  to  whether  the franchisor and its principals, officers, partners, directors, or any other  person  identified  in  the application for registration:  (1)  Has  been  convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable or enjoined in a civil action by  a  final judgment  if  such civil action involved fraud, embezzlement, fraudulent conversion or misappropriation of property.  (2) Is subject to any currently effective order of the  United  States securities  and  exchange  commission or the securities administrator of any state denying the registration of or barring, revoking or suspending the registration of such person as a securities  broker  or  dealer,  or investment advisor, or securities agent or registered representative, or is  subject  to any currently effective order of any national securities association  or  national  securities  exchange,  as  defined   in   the Securities and Exchange Act of 1934, suspending or expelling such person from membership in such association or exchange.  (3) Is subject to a currently effective order or ruling of the federal trade commission.  (4)  Is  subject  to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought  by a  public  agency  or department, including, without limitation, actions affecting a license as a real estate broker or salesman.   Such statement shall set  forth  the  court,  date  of  conviction  or judgment,  any  penalty imposed or damages assessed, or the date, nature and issuer of such order.  (f) The length of time the franchisor: (1) has conducted a business of the type to be operated by the franchisees, (2) has  granted  franchises for  such  business,  and  (3)  has granted franchises in other lines of business.  (g) The most recent financial statement of  the  franchisor,  together with  a  statement of any material changes in the financial condition of the franchisor from the date thereof. The department of law may by  rule or  order  prescribe  (1)  the  form and content of financial statements  required  under  this  article,  (2)  the  circumstances   under   which consolidated  financial  statements  shall  be  required,  and  (3)  the circumstances under which  financial  statements  shall  be  audited  by independent certified public accountants.  (h) A statement of the franchise fee charged, the proposed application of  the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not  uniform  and  the same in all cases.  (i)  A  statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is  required  to  pay  to  the franchisor,   including   royalties  and  payments  of  fees  which  the franchisor collects in whole or in part on behalf of a  third  party  or parties.  (j)  A statement of the conditions under which the franchise agreement may be terminated or renewal refused or repurchased at the option of the franchisor.  (k) A statement as to whether, by the terms of the franchise agreement or by other device or  practice,  the  franchisee  or  subfranchisor  is required  to  purchase  from  the  franchisor  or his designee services, supplies,  products,  fixtures  or   other   goods   relating   to   the establishment  or  operation  of the franchise business, together with a description and the terms and conditions thereof.  (l) A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the  goods  or services offered by him to his customers.  (m)  A  statement  of  the  terms  and  conditions  of  any  financing arrangements when offered directly or indirectly by  the  franchisor  or his agent or affiliate.  (n)  A  statement  of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party  any  note, contract,  or  other  obligation  of  the franchisee or subfranchisor in whole or in part.  (o) Any representation of estimated or projected  franchisee  earnings or income, together with a statement setting forth the data, methods and computations upon which such estimate or projection is based.  (p) A statement of any compensation or other benefit given or promised to a public figure arising, in whole or in part, from (1) the use of the public  figure  in  the  name  or  symbol  of  the franchise, or (2) the endorsement or recommendation of the franchise by the public  figure  in advertisements.  (q)  A  statement  of  the  total  number  and  location of franchises presently operating and proposed to be sold.  (r) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory.  (s) A representation that the registered prospectus does not knowingly omit any material fact or contain any untrue  statement  of  a  material fact.  (t) Other information which the franchisor may desire to present.  (u)  Other  information  or such additional disclosures related to the offer or sale of the franchise as the department of law may prescribe by rules or regulations promulgated under section six  hundred  ninety-four of this article as will afford prospective franchisees an adequate basis upon which to found their judgment.  (v)  When  the  person  filing  the application for registration of an offering prospectus  is  a  subfranchisor,  the  prospectus  shall  also include the same information concerning the subfranchisor as is required from the franchisor pursuant to this article.    3.  Applications  for  registration of an offering prospectus shall be signed and verified by the franchisor or by  the  subfranchisor  in  the same  manner  provided  in  the  civil  practice  law  and rules for the verification of pleadings.   4.  Every  application by a franchisor for registration of an offering prospectus shall be accompanied by  a  copy  of  the  typical  franchise contract  or  agreement  proposed  for  use  or  in  use  in this state, including  all  amendments,  deletions,  variations,   and   supplements thereto.   5.  Every  application by a franchisor for registration of an offering prospectus shall be accompanied by such  materials,  data,  records,  or other  information  as  the department may by rule require in connection with its consideration of the application.   6. The offering prospectus shall recite in bold type of not less  than twelve-point   that   registration   does   not   constitute   approval, recommendation, or endorsement by the department of law. The  department may  require  that the applicant set forth in its prospectus potentially adverse  information  in  designated  positions  and  in  a  type   size acceptable to the department.   7.  Unless  otherwise provided by regulation issued by the department, applications to register the offering prospectus required by subdivision one of this section shall be filed with the department  of  law  at  its office  in  the  city of New York prior to the offering of the franchise involved. No offer, advertisement, or sale of such a franchise shall  be made in or from the state of New York until the department has issued to the  franchisor  or  other  offeror  a  letter stating that the offering prospectus sought to be registered has  been  accepted  for  filing  and filed.  The  department,  not  later than thirty days after such filing, shall issue such a letter or, in  the  alternative,  a  notification  in writing indicating the respect in which the application for registration or  the  proposed  offering  prospectus itself is deficient or otherwise fails to make adequate disclosure. A refusal  to  register  an  offering prospectus,  and  notification  thereof,  shall  be  forthcoming  if the department finds:  (a) That there has been a failure to comply with any of the provisions of this article or the rules of the department pertaining thereto.  (b)  That  the  offer  or  sale  of  the  franchise  would  constitute misrepresentation to, or deceit or fraud of, prospective franchisees.  (c)  That  the application for registration of the offering prospectus or the proposed offering prospectus itself is incomplete in any material respect  or  contains  any  statement  which  is,  in   light   of   the circumstances  under which it was made, false or misleading with respect to any material fact.  (d) That the franchisor's method of business includes or would include activities which are illegal where performed.  (e) That a person identified in the application has been convicted  of an offense described in subparagraph one of paragraph (e) of subdivision two of this section, is subject to an administrative order, or has had a civil  judgment  entered  against  him involving the illegal offering of franchises  or  securities,  and  the  department  determines  that  the involvement  of  the  person  in the sale or management of the franchise creates an unreasonable risk to prospective franchisees.  (f) That the franchise offering sought to be registered is the subject of a permanent or temporary injunction  entered  under  any  federal  or state act applicable to the offering.  (g) That the franchisor has failed to pay the proper fee.   8.  A  franchise  which  is subject to registration under this article shall not be sold without first providing to the prospective franchisee,  a copy of the offering prospectus, together with a copy of all  proposed agreements  relating  to the sale of the franchise at the earlier of (a) the first personal meeting between the franchisor or its agent  and  the prospective  franchisee,  (b)  at  least  ten business days prior to the execution of a binding franchise or other agreement, or (c) at least ten days prior to the receipt of any consideration in  connection  with  the sale  or proposed sale of a franchise. For the purposes of this chapter, the words: (i) "first personal meeting" shall mean  the  first  face  to face   meeting  between  a  franchisor  or  franchisor's  agent  or  any representative or employee thereof and a prospective franchisee which is held for the purpose of discussing  the  sale  or  possible  sale  of  a franchise;  (ii)  "other  agreement"  shall mean an agreement imposing a binding legal obligation on such prospective franchisee, about which the franchisor, franchise sales  agent,  or  any  agent,  representative  or employee  thereof,  knows or should know, in connection with the sale or proposed sale of a franchise; and, (iii) "receipt of any  consideration" shall  mean  the  payment  by  a prospective franchisee, about which the franchisor, franchise sales  agent,  or  any  agent,  representative  or employee  thereof,  knows  or  should  know,  of  any  consideration  in connection with the sale or proposed sale of a franchise.   9. (a) A franchisor shall promptly notify the department  in  writing, by  an  application  to amend the registered offering prospectus, of any material change in  the  information  contained  in  the  prospectus  as originally  submitted  or  amended. The department may further define by rule what is a material change for the purpose and  circumstances  under which an amendment of a registered prospectus shall be mandatory.  (b)  An  amendment to a registered offering prospectus filed after the effective date of the registration of the original offering  prospectus, if  the  amendment is approved by the department, shall become effective on such date the department may determine, having  due  regard  for  the public interest and the protection of franchisees.   10.  (a)  Neither  the fact that an application for registration of an offering prospectus under this article has been filed, nor the fact that such registration has become effective, constitutes  a  finding  by  the department  that  any  document  filed under this article, including the registered offering prospectus, is true,  complete  or  not  misleading. Neither  any such fact nor the fact that an exemption is available for a transaction means that the department has passed in  any  way  upon  the merits  or  qualifications  of, or recommended or given approval to, any person, franchise, or transaction.  (b) It is unlawful to make or cause to  be  made  to  any  prospective purchaser or offeree a representation inconsistent with paragraph (a) of this subdivision.   11.  No  offer  of  a  franchise  shall be made except by the offering prospectus registered with  the  department  of  law  pursuant  to  this section. Any advertisement in whatever form, including periodicals or on radio  or  television,  shall  contain a statement that no offer of such franchise is made except by  such  offering  prospectus,  and  all  such advertising shall be consistent with the representations and information required  to  be  set  forth  in such prospectus as hereinbefore in this section provided.   12. In all literature employed in the offer and sale  of  a  franchise and   in  all  advertising  in  connection  therewith,  there  shall  be contained, in easily readable print on the  face  thereof,  a  statement that  the  filing  of  an  application  for  registration of an offering prospectus or the acceptance and filing thereof by the department of law as required by this section does not constitute approval of the offering  or the sale of such franchise by the department of law or  the  attorney general of this state.   13. A person shall not offer to sell or sell a franchise in this state on  behalf  of  a  franchisor  or  subfranchisor, except in transactions exempted under this article, unless the franchisor or subfranchisor  and the  person  file a franchise agent's application with the department of law on the form prescribed by the department, and the department  issues an  order  of registration for such person. The department may prescribe rules relating to the qualifications, conduct, and  denial,  suspension, or revocation or registrations of franchise sales agents.   14. (a) Every franchisor or subfranchisor offering franchises for sale in  this  state  shall  keep  and  maintain  a complete set of books and records and shall keep and  maintain  accounts  of  franchise  sales  in accordance with generally accepted accounting principles, and shall make and  file with the department such reports as the department may by rule prescribe, including an annual report setting forth the franchises  sold by  it  and  the  proceeds  derived  therefrom, and shall furnish to the department such materials relating to the offer or sale of the franchise as it may by rule require. All such records are subject at any  time  to reasonable  periodic, special, or other examinations by a representative of the department, within or without this state, as the department deems necessary or appropriate in the public interest or for the protection of investors.  (b) The department may consider the opinions, appraisals, and  reports of  engineers, appraisers, or other experts which may be presented by an applicant or any interested party, on any question of fact concerning or affecting the franchises proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisals, and reports,  the  department may  have  any  or  all  matters concerning or affecting such franchises investigated, appraised, passed upon, and certified to it by  engineers, appraisers, or other experts selected by it. The experts' cost of travel and  lodging  relating  to such investigation, and the costs of experts' fees, shall  be  borne  by  the  applicant  and  shall  be  paid  before effectiveness  of  its  registration,  provided that the applicant shall have agreed in writing with the department to bear such costs and  fees, or shall have had the opportunity to establish that no good cause exists for  such  investigation or expenditure, or shall have himself furnished the desired information to the department.  (c) If information that the department deems necessary relating to the franchise is requested by the department and is  not  furnished  by  the applicant,   or   the  department  deems  information  submitted  to  be unreliable or substantially incomplete, the department  may  investigate any  or all matters concerning or affecting such franchise. The costs of all travel and lodging expenses relating to  investigations  outside  of this  state  shall  be  borne  by the applicant and shall be paid before effectiveness of its registration.   15. The department may by rule require the filing and  approval  prior to  use  of any pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed to  or  intended for distribution to prospective franchisees.