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FTC updates Franchise Rule's exemption thresholds
By Beata Krakus on June 8, 2020 at 11:00 AM

As required every four years, adjustments to the FTC Franchise Rule’s monetary thresholds for certain exemptions are on the way.

The exemptions under the FTC Franchise Rule are intended to exclude franchise transactions in which the prospective franchisee doesn’t need the protection the rule is intended to provide. As several exemptions available under the FTC Franchise Rule are tied to dollar thresholds, they need to be adjusted from time to time to remain relevant. For example, when the current rule was adopted in 2007, a franchise sale was exempt from the FTC Franchise Rule’s disclosure requirements if the payments from the franchisee to the franchisor in the first six months of the franchisee’s operations did not exceed $500. Adjustment of the dollar threshold is necessary for this exemption not to become irrelevant with inflation. 

The fees being adjusted effective July 1, 2020, are:

  • The minimum fee exemption threshold will be $615.
  • The large investment exemption threshold will be $1,233,000.
  • The large franchisee exemption threshold will be $6,165,500.

Each of these exemptions is complex, and franchisors should carefully consider the specific facts of any sale before relying on an exemption. Please contact Greensfelder’s Franchising & Distribution group if you have questions about exemption-based franchising.

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