If the commissioner finds that the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill obligations to provide real estate, improvements, equipment, inventory, training or other items included in the offering, the commissioner may by rule or order require the escrow, impoundment, or deferral of franchise fees and other funds paid by the franchisee or subfranchisor until no later than the time of opening of the franchise business. If a financial condition is required, the Franchisor may request the Minnesota Department of Commerce lift the requirement after submitting its next audited financial statement during their registration renewal.
Impoundment
All proceeds received from the sale of the franchises subject to an Impoundment Agreement shall be paid to the Impoundment Agent within two business days from the date of sale and deposited by the Impoundment Agent in an escrow account. Funds subject to any impoundment imposed under Minnesota Statutes 1973 Supplement, section 80C.05, shall be placed in a separate trust account with a bank located in Minnesota. During the term of this Impoundment Agreement, the Franchisor shall cause all checks received by it in payment for such franchises to be either payable to the Impoundment Agent or endorsed forthwith to the Impoundment Agent.
For more information about impoundments or the release of impounded funds, refer to Minnesota Rule 2860.1800. The Minnesota Franchise Impoundment Agreement may be required as a condition of registration. The Franchise Impoundment Agreement requires that three original signature Minnesota Franchise Impoundment Agreements be submitted to the Commissioner. Two original signature agreements will be returned to the applicant for the Impound Agent and the Franchisor.
Minnesota Franchise Impoundment Agreement
Surety Bond in lieu of Impoundment
As an alternative to an Impoundment, a franchisor may post a surety bond in an amount equal to the initial franchise fee times the number of franchises projected to be opened in Minnesota as per Item 20 of the Franchise Disclosure Document. If no locations are projected to be opened in Minnesota, the minimum amount equal to one franchise free will be required for the bond.
Minnesota Franchisor Surety Bond Form
Fee Deferral
The franchisor will defer the payment of the initial franchise fees until the franchisee has opened their business. No application or form is needed for this financial condition. The fee deferral must be indicated in the Minnesota Addendum within the Franchise Disclosure Document and franchise agreement(s).