TITLE AND DEFINITIONS
This chapter shall be known and may be cited as the “Wisconsin Franchise Investment Law".
History: 1971 c. 241
Protection for consumers against unfair and deceptive business. Jeffries, 57 MLR 559.
The Wisconsin franchise investment law. Mett, 1972 WBB No. 5.
Avoiding the Accidental Franchise. Modell & Fittante. Wis. Law. May 2003.
In this chapter:
“Area franchise" means any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for such right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor.
“Division" means the division of securities.
“Franchise" means a contract or agreement, either express or implied, whether oral or written, between 2 or more persons by which:
A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed or suggested in substantial part by a franchisor; and
The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's business and trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
The franchisee is required to pay, directly or indirectly, a franchise fee.
Unless specifically stated otherwise, “franchise" includes area franchise.
“Franchisee" means a person to whom a franchise is granted.
“Franchise fee" means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services. The following shall not be considered the payment of a “franchise fee":
The purchase or agreement to purchase goods at a bona fide wholesale price. The division may issue rules defining wholesale transactions exempt under this paragraph.
The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring such credit card.
Amounts paid in connection with trading stamp promotions permitted under s. 100.15
by a person issuing trading stamps in connection with the retail sale of merchandise or service.
Any other consideration which the division by rule excludes from “franchise fee".
“Franchisor" means a person who grants a franchise.
“Fraud" and “deceit" are not limited to common law fraud or deceit.
“Offer to sell" includes every attempt to offer to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. This term does not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee.
“Order" means every direction or determination of the division designated an order and made in writing by the division, except a rule as defined under s. 227.01 (13)
“Sale" or “sell" includes every contract or agreement of sale of, contract to sell, or disposition of, a franchise or interest in a franchise for value. This term does not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee.
“Subfranchisor" means a person to whom an area franchise is granted.
See also s. DFI-Sec 31.01
, Wis. adm. code.
Service stations leased to their operators under agreements under which the rent was based on the amount of gasoline sold were not franchises subject to the Wisconsin Franchise Investment Law. Clark Oil & Refining Corp. v. Leistikow, 69 Wis. 2d 226
, 230 N.W.2d 736
Franchise tie-ins and antitrust; a critical analysis. Boer. 1973 WLR 847.
REGISTRATION OF FRANCHISES
No person may sell in this state any franchise unless the franchise has been registered under this chapter or is exempted under s. 553.23
See also s. DFI-Sec 32.05
, Wis. adm. code.
A franchisor who illegally sold a franchise had no right to set off the value of “benefits conferred" upon the franchisee against the franchisor's liability for its illegal actions. Hiltpold v. T-Shirts Plus, Inc. 98 Wis. 2d 711
, 298 N.W.2d 217
(Ct. App. 1980).
Failure to register an offer of franchises under this section affords only an action for rescission and does not add any additional rights over what a plaintiff has under the law of equity. Lulling v. Barnaby's Family Inns, Inc. 499 F. Supp. 1353
This chapter does not apply to the offer or sale of the following franchises:
Any relationship if the person described in the offer as a franchisee, or any of the current directors or executive officers of that person, has been in the type of business of the franchise relationship for more than 2 years and the parties anticipated, or should have anticipated, at the time the agreement establishing the franchise relationship was reached, that the sales arising from the relationship would account for no more than 20 percent of the gross sales revenue of the franchisee for a period of at least one year after the franchisee begins selling the goods or services involved in the franchise.
An association of producers of agricultural products authorized by 7 USC 291
An organization that is operated on a cooperative basis by and for independent retailers and that sells goods at wholesale to, or furnishes services primarily to, its members.
History: 1995 a. 364
Private franchisee and subfranchisor sales exempted.
The sale of a franchise by a franchisee for the franchisee's own account and the sale of the entire area franchise owned by a subfranchisor for the subfranchisor's own account are exempted from s. 553.21
if the sale is not effected by or through a franchisor. A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee or because a franchisor imposes or has the right to impose a fee or charge to reimburse the franchisor for reasonable and actual expenses incurred in connection with the sale.
Experienced franchisee exempt transactions. 553.235(1)(1)
Conditions of exemption.
Except as provided in sub. (2)
, a registration exemption is available for the sale of a franchise that meets all of the following conditions:
The immediate cash payment required by the franchisee upon purchase of the franchise is at least $100,000 and does not exceed 20 percent of the franchisee's net worth, excluding the franchisee's principal residence, furnishings and automobiles for personal use.
With respect to each sale in this state, the franchisor reasonably believes immediately before making the sale that the prospective franchisee, either alone or with the prospective franchisee's representative, has sufficient knowledge and experience in the type of business operated under the franchise that the prospective franchisee is capable of evaluating the merits and risks of the prospective franchise investment.
The exemption under sub. (1)
is not available for the sale of a franchise in which the franchisee would be a motor vehicle dealer or a motor vehicle distributor or wholesaler, as defined in s. 218.0101
The division may, by rule or order, withdraw or further condition the availability of the exemption under sub. (1)
Exemption proceedings. 553.24(1)(1)
The division may by order deny or revoke any exemption under s. 553.23
with respect to the sale of a franchise for any of the grounds specified in s. 553.28 (1)
If the public interest and the protection of investors so require, the division may, by order, summarily deny or revoke any exemption under s. 553.23
with respect to the sale of a franchise.
No order under this section may operate retroactively.
A person who sells a franchise pursuant to an exemption under s. 553.23
after the exemption is denied or revoked by an order of the division does not violate s. 553.21
The person was not given notice of the order; and
The person sustains the burden of proof to establish that he or she was not given notice and did not know and, in the exercise of reasonable care, could not have known of the order.
In any proceeding under this chapter, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
Within 10 days after the filing date of an application for an exemption under s. 553.25
, the division may require that additional information be filed if the division determines that the information is reasonably necessary to establish an exemption under s. 553.25
. If the division requires additional information, the exemption is not effective until 10 days after the additional information is filed with the division, unless a shorter period is permitted by the division.
Exemption by division.
The division may by rule or order exempt from registration under s. 553.21
any franchise if registration is not necessary or appropriate in the public interest or for the protection of investors.
Registration by notification. 553.26(1)(1)
A person who wishes to sell a franchise in this state that is not excluded under s. 553.22
and that is not exempt from registration under s. 553.23
shall register the franchise by notification to the division. The notification shall be on a notice form prescribed by the division, which need include only the name of the franchisor or subfranchisor, the name or names under which the franchisor or subfranchisor intends to do business and the franchisor's or subfranchisor's principal business address. Nothing other than a copy of the offering circular required under s. 553.27 (4)
, the consent to service of process required by s. 553.27 (10)
, if it is not already on file with the division, and the registration fee required under s. 553.72 (1)
need accompany the notification.
A franchisor may register only one franchise system on each notification.
Registration is effective upon receipt of the notification by the division. The notice shall be effective for one year from the date on which the division receives it.
Upon receipt of notification, the division shall endorse upon the notice form “received" and the date and shall return a copy to the person who filed the notice form.
A person who has complied with sub. (1)
need not file with the division, during the period when the registration is effective, any more information, other than an application or amendment required to be filed under s. 553.31
. The division may not require changes in the offering circular filed by the franchisor, subject to the division's authority to suspend or revoke a registration for any of the causes under s. 553.28
See also ss. DFI-Sec 32.06
, Wis. adm. code.
General registration provisions; offering circular; consent to service of process. 553.27(2)(2)
If the division 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 and if the franchisee so requests, the division may by rule or order require the escrow of franchise fees and other funds paid by the franchisee or subfranchisor until no later than the time of opening of the franchise business, or, at the option of the franchisor, the furnishing of a surety bond as provided by rule of the division, if the division finds that such requirement is necessary and appropriate to protect prospective franchisees or subfranchisors.
No franchise subject to registration under this chapter may be sold in this state unless a copy of an offering circular is provided to the prospective franchisee at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement with the franchisor or any affiliate of the franchisor or at least 14 days prior to the payment of any consideration to the franchisor or any affiliate of the franchisor, whichever first occurs. The offering circular may be in a form that the division requires by rule, in a form permitted under 16 CFR 436
or in a form permitted by a successor to that regulation.
Every franchisor who files a notification shall file with the division, in the form that the division by rule prescribes, an irrevocable consent appointing the division to be the applicant's attorney to receive service of any lawful process in any civil action against the applicant or the applicant's successor or personal representative that arises under this chapter or any rule or order under this chapter after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. A person who has filed a consent in connection with a previous registration or exemption under this chapter need not file another. Service may be made by leaving a copy of the process in the office of the division, but it is not effective unless the plaintiff, who may be the division in an action instituted by the division, sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his or her last address on file with the division, and the plaintiff's affidavit of compliance with this subsection is filed in the case on or before the return day of the process, if any, or within the time that the court allows.
See also ss. DFI-Sec 32.08
, Wis. adm. code.
Denial, suspension or revocation of registrations. 553.28(1)(1)
The division may issue an order suspending or revoking the effectiveness of any registration if the division finds any of the following:
That the franchisor or any person acting on behalf of the franchisor failed to provide an offering circular to a person purchasing a franchise in this state within the time period prescribed in s. 553.27 (4)
That any person in this state was sold a franchise by means of any written or oral communication that contained an untrue statement of a material fact, or that omitted to state a material fact necessary in order to make statements made, in the light of the circumstances under which they were made, not misleading.
That any person identified in the franchisor's offering circular has been convicted of an offense that is required to be disclosed in the offering circular, or is subject to an order, or has had a civil judgment entered against him or her that is required to be disclosed in the offering circular, and the involvement of the person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees.