State Franchise Registration Status and Franchise Laws

Illinois


Registration or Filing Required? Yes, Registration
Business Opportunity Laws? Yes

Illinois is a franchise registration state. So, you must register your FDD with the Franchise Bureau of the Illinois Attorney General prior to offering or selling franchises in the state. Illinois charges a $500 fee for the initial registration application and a $100 fee for renewal applications, which must be done annually within 120 days of the franchisor’s fiscal year end. More information can be found on the Illinois Attorney General’s Website.

How Do I Know if I Need to Register?

Franchisors must register under the Illinois Franchise Disclosure Act whenever the franchisee is a resident of Illinois – even if the franchised business will not be located in the state! Additionally, the franchise must be registered when the offer is made or accepted in the state, and the franchised business will be operated in the state, regardless of where the franchisee resides. There is some discussion over whether registration is required in cases in which the offer and acceptance are made outside Illinois, the franchisee is not domiciled in Illinois, but the business will be operated in the state. Franchisors should exercise caution when dealing with this scenario. Unless there is ample reason not to, franchisors would be best protected by registering regardless.

How Do I Register My Franchise in Illinois?

In order to register your franchise in Illinois, you will need to submit hard copies of several documents to the Illinois Franchise Bureau (500 S. Second Street, Springfield, IL 62706). Your Illinois FDD must comply with guidelines provided by the North American Securities Administrators Associations. Along with your FDD, your franchise registration application should contain several additional documents (many of which can be found in the appendices of the State Administrative Code, and on their website) including:

  1. A cover letter
  2. A current copy of your FDD
  3. The Uniform Franchise Registration Application
  4. Consent to Service of Process
  5. Costs and Source of Funds
  6. State Cover Page
  7. A Certification Page
  8. Sales Agent Disclosure forms
  9. An Auditor’s consent letter for audited reports included in the registration
  10. The $500 filing fee, made payable to the State of Illinois

The examination process in Illinois is more thorough than most other states, and you can expect the state examiners to request revisions to be made to your FDD. When the examiners accept your FDD they will send you a written notice informing you that your registration is granted, the registration date, and the registration renewal date.

Will I Need to Renew My Registration?

Yes. Franchisors must renew their Illinois registration annually. In your registration notice, the state will provide you with your renewal date, which will be 120 days after the end of your fiscal year. If a franchisor fails to submit their renewal application by the renewal date, they must submit a new initial registration application. In order to file a renewal application, you must submit the following documents:

  1. Two copies of your FDD (one clean and one showing changes from the prior year)
  2. The Uniform Franchise Registration Application
  3. Consent to Service of Process (if changes have been made)
  4. Costs and Source of Funds (if changes have been made)
  5. Sales Agent Disclosure forms
  6. A Certification Page
  7. An Auditor’s consent letter for audited reports included in the registration
  8. The $100 renewal fee, made payable to the State of Illinois

What if I Changes to My FDD?

If you make a material change to your FDD, you must submit an amendment application within 90 days of the change. When filing the application, the franchisor must include:

  1. Two copies of the pages of the FDD with changes (one clean and one black-lined).
  2. The Uniform Franchise Registration Application.
  3. A Certification Page.
  4. The $100 amendment fee made payable to the State of Illinois.

The Illinois Administrative Code does state that there is a $25 charge for filing an immaterial amendment, but also doesn’t require franchisors to file an amendment application for immaterial amendments.

Does Illinois Have Financial Assurance Requirements?

Yes, during the registration process if the state examiner determines that you do not have sufficient capital, the state will impose financial assurance requirements as a prerequisite for your registration. If you are given financial assurance requirements, you will typically be allowed to choose between one of the following three methods: i) escrowing initial franchise fees; ii) posting a bond; or iii) deferring initial franchise fees.

Are There Any Exemptions from Registration?

There are a few exceptions to the registration requirements that will not be applicable to most franchisors. A franchise is exempted from registration if, the franchisor has a net worth greater than $15,000,000, the franchisee has been in business for at least 5 years and has a net worth greater than $5,000,000, or the purchaser of the franchise has been effectively selling franchises on behalf of the franchisor for the previous two years. A franchise is also exempt from registration if the franchisee is a bank or insurance company. On top of that, there are other franchise elements that may exempt a franchise from other aspects (but not registration) of the Franchise Disclosure Act – those are listed here.

Are There Other Rules Governing the Franchise Relationship?

The Franchise Disclosure Act also includes additional terms controlling certain aspects of the franchise relationship. Among other things, franchisors are not allowed: (i) to restrict franchisees from joining trade associations; (ii) impose materially different fees between Illinois franchisees; (iii) terminate the franchise agreement without good cause, including providing the franchisee with 30 days-notice of their default; or (iv) deny renewal of a franchise without giving the franchisee 6 months’ notice of their intention to not renew. On top of that, a franchisor cannot deny a franchisee renewal when the franchisee will be prohibited from operating a competing business after the term of the franchise agreement.

Fun Fact: Seriously, where would be without Illinois? They are the home of the first McDonald’s, the first Dairy Queen, and the first Twinkies!