By Fredrick P. Niemann, Esq. a New Jersey Franchise Lawyer
New Jersey’s franchise laws are pathetic. They say very little about the most important issues to franchisees except for franchise terminations. The New York Franchise Act however provides an exemption to franchisors from the general registration requirements of the Act for what is deemed an “isolated franchise sale.” Under this exemption, no franchisor is required to register in New York where:
(1) “The transaction is pursuant to an offer directed by the franchisor to not more than two persons . . .
(2) If the franchisor does not grant the franchisee the right to offer franchises to others,
(3) A commission or other remuneration is not paid directly or indirectly for soliciting a prospective franchisee in this state, and
(4) The franchisor is domiciled in this state or has filed with the department of law its consent to service of process on the form prescribed by the department.”
Their courts have interpreted the law to mean in essence that the sale of the first franchise is exempt from registration if the unit was only offered to a maximum of two people.
This exemption is well settled law: “This isolated franchise sale exemption is potentially useful for new U.S. franchisors or foreign franchisors that are new to New Jersey or wish to test the New Jersey market. It permits a franchiser to sell one franchise in New Jersey without having to register a disclosure document with the state.” It’s time for the legislature to adopt a favorable and simple law to allow prospective franchises to be sold in this state without regulatory obstacles.
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