2023 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.