Exemptions to the registration requirement imposed by section 80C.02 are available to franchisors and franchisees and can be found under Section 80C.03 and MN Rule 2860.0200. Exemption noticed and requests can filed via ComOnline.
The following Franchise exemptions are available to franchisors in the State of Minnesota: (please note- we do not have filings forms for these exemptions)
Sale by Existing Franchisee Exemption – 80C.03(a)
The sale by existing franchisee exemption is available to franchisors when the franchisor is not involved in the sale. In other words, the sale cannot be “effected by or through” the franchisor, but the franchisor may reserve a right to approve or disapprove of the new franchisee. Minn. Stat. Ann. § 80C.03(a). Also, the franchisee cannot make more than 1 sale during any 12-month period. Minn. Stat. Ann. § 80C.03(a). Lastly, the new franchisee cannot be required to enter into a substitute franchise agreement or other agreement containing terms that are unfair and unequitable.
Sales by Executors, Trustees, Etc. Exemption – 80C.03(b)
The sales by executors, trustees, etc. exemption is available to franchisors when a transaction is made by judicial officers. For example, transactions by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian, or conservator are exempt. Minn. Stat. Ann. § 80C.03(b).
Institutional Franchisee Exemption – 80C.03(c)
The institutional franchisee exemption is available to franchisors when a sale or offer is made to an institution. For example, an offer or sale of a franchise to a banking organization, financial organization, or life insurance company is exempt. Minn. Stat. Ann. § 80C.03(c). Overall, Minnesota is less concerned about protecting these types of purchasers.
Single Sale Franchise Exemption – 80C.03(e)
The single sale franchise exemption is available to franchisors who wish to avoid registration requirements by limiting the number of franchises offered for sale. In Minnesota, the number of franchise sales is limited to 1 sale in any 12-month period. Minn. Stat. Ann. § 80C.03(e). Keep in mind that there are additional criteria for franchisors wishing to invoke this exemption in Minnesota.
Fractional Franchise Exemption – 80C.03(f)
The fractional franchise exemption is available to franchisors when a franchise is only a small percentage of the potential franchisee’s business. A “fractional franchise” is meant to allow an existing business to add new, but similar products or services. Potential franchisees must have at least 2 years of experience in the type of business represented by the franchise. Minn. Stat. Ann. § 80C.01. Franchisors and potential franchisees anticipate that sales from the franchise will not be more than 20% of the sales of the potential franchisee. Minn. Stat. Ann. § 80C.01.
Exemption by Order – 80C.03(g)
The exemption by order depends on whether the Commissioner exempts a transaction as not being within the purposes of the Minnesota Franchise Act such that registration is neither necessary nor appropriate as a matter of public interest or to protect investors. Minn. Stat. Ann. § 80C.03(g).
Out of State Franchise Exemption 80C.03(h)
The out of state franchise exemption is available to franchisors when a state allows them to sell outside the state to non-residents. Minnesota has 4 major requirements. First, the potential franchisee must not be domiciled in Minnesota. Minn. Stat. Ann. § 80C.03(h). Second, the potential franchisee may not be present in Minnesota in connection with the offer or sale of the franchise. Minn. Stat. Ann. § 80C.03(h). Third, the franchised business may not be operated wholly or partly in Minnesota. Minn. Stat. Ann. § 80C.03(h). Fourth, the franchise transaction must not violate the laws of the jurisdiction where the potential franchisee is a resident. Minn. Stat. Ann. § 80C.03(h).
Sale to Existing Franchisee Exemption
The sale to existing franchisee exemption is available to franchisors when an additional franchise is sold to a current franchisee. The sale of an additional franchise must not vary substantially from a franchise already owned by the current franchisee. Minn. R. 2860.1100. Also, a franchisor cannot require that the current franchisee agree to any unfair and inequitable terms as a condition of sale. Minn. R. 2860.1100.
Renewal of Existing Agreement Exemption
The renewal of an existing franchise agreement exemption is available to franchisors that already have agreements with potential franchisees. Minnesota only requires that the renewed franchise not vary substantially from the existing franchise. Minn. R. 2860.1100.
Nominal Franchise Fee Exclusion
The nominal franchise fee exclusion is available to franchisors when annual franchise fees are only nominal. For example, in Minnesota, the franchise fee cannot be more than $100 per year. Minn. Stat. Ann. § 80C.01.
Exemption Burden of Proof
Franchise exemptions are not approved by the Minnesota Department of Commerce nor has the division passed upon the accuracy or adequacy of the exemption disclosure. Any representation to the contrary is a criminal offense. Per Minn. Stat. 80C.12., Subd. 4: In any proceeding under sections 80C.01 to 80C.22, the burden of proving an exemption or exception from a definition is upon the person claiming it.