Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: NASAA makes new revisions to franchise multi-unit commentary, seeks public comment, (Jun 16, 2014)

By John W. Arden, J.D., LL.M.

For the second time in two months, the North American Securities Administrators Association (NASAA) has released revisions to its proposed Franchise Multi-Unit Commentary and has requested public comment through June 30, 2014. In a June 15 notice, NASAA today released a new proposal , which changes some language throughout the commentary and adds a new item (SF 20.3) requiring a subfranchisor to provide a list of its own current unit franchisees and a list the current unit franchisees of the franchisor and other subfranchisors.

NASAA’s Franchise and Business Opportunity Project Group released the proposed Original Multi-Unit Commentary on October 15, 2013 and requested public and internal comment. The commentary was intended to provide practical guidance for disclosing multi-unit franchising arrangements that have become common in franchising but that are not specifically addressed by NASAA’s 2008 Franchise Registration and Disclosure Guidelines or the FTC Franchise Rule.

The original commentary addressed specific disclosure questions brought to the attention of NASAA’s project group about the three multi-unit franchising structures (area development, subfranchising, and area representation). The body of the commentary was a group of questions and answers for each of the three structures, specifically dealing with items in a franchise disclosure document.

NASAA received six formal public comments and several informal comments between October 15 and November 15, 2013. A review of these comments prompted the Project Group to make revisions to the commentary that (1) changed the definition of “area representative”; (2) clarify how franchisors must disclose area developers in the lists of current and former franchisees; (3) prescribe how subfranchisors must list current and former franchisees; and (4) explain the circumstances when franchisors must disclose the business experience, litigation, and bankruptcy information of area representatives. NASAA accepted public comment on these changes from April 15 through May 14, 2014.

In response, NSAA received two formal public comments and an additional informal comment. Some of the comments repeated suggested revisions the Project Group had considered and rejected. Other comments suggested clarifying and improving specific items. After reviewing all comments, the Project Group proposed revisions, including the new item SF 2.03. The Notice of Request for Comment and a “black lined” copy of the specific items of the Revised Commentary appeals here on the NASAA website.

The comment period for the proposed revisions runs from June 16 through June 30, 2014. Comments should be directed by email or in hard copy to:

News: FranchisingDistribution