State Franchise Registration Status and Franchise Laws

Minnesota


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

Minnesota is a franchise registration state. So, you must register your FDD with the Securities Division of the Minnesota Department of Commerce prior to offering or selling franchises in the state. Minnesota charges a $400 fee for the initial registration application and a $200 fee for renewal applications (unless there are material changes from the prior year, in which case it is $300), which must be done annually within 120 days after the franchisor’s fiscal year end. You can find more information on the Minnesota Department of Commerce’s Website.

What Does Minnesota Consider a Franchise?

The Minnesota Franchise Act has a very in-depth definition of what constitutes a franchise. In Minnesota, a business is considered a franchise when:

  1. There is a contract in which the buyer: i) is granted the right to sell or distribute goods or services associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol; ii) has a common interest with the seller in marketing the goods or services; and iii) pays a fee.
  2. There is a contract in which the buyer is granted to right to market motor vehicle fuel at retail under the seller’s name, trademark or other commercial symbol.
  3. There is a sale or lease of goods or services (other than demonstration equipment for less than $500) in which the purpose is to enable the buyer to start a business, where the seller: i) represents that it will provide location assistance to the buyer; ii) represents that it will purchase any or all products made by the buyer with the goods or services supplied by the seller; or iii) guarantees that the buyer will derive income exceeding the purchase price.
  4. There is a contract in which a manufacturer, selling security systems through distributors in the state, requires regular payments from the distributor as royalties or residuals for products purchased and paid for by the distributor.

It is worth noting that the Minnesota Franchise Administrative Rules specifically exempt contracts that give the right to transport freight or perform moving services for household goods from the definition of a franchise, as long as they are subject to the federal regulation of the Interstate Commerce Commission.

How Do I Know if My Franchise is Subject to Minnesota Regulation?

Franchises will be subject to the Minnesota Franchise Act, and its registration provisions, when the offer or sale of the franchise is made in the state, directed to the state, or accepted in the state. Franchises will also be subject to the Act whenever the franchised business will be located in Minnesota, regardless of where the offer or acceptance took place.

How Do I Register in Minnesota?

Beginning in 2021, all franchise registration applications in Minnesota are submitted through their online portal, ComOnline. The Department has conveniently provided instructions for submitting your filing online. Your initial registration application should include:

  1. State Cover Sheets
  2. State Effective Date Pages
  3. Uniform Franchise Registration Application
  4. Franchisor’s Costs and Source of Funds
  5. Uniform Franchise Consent to Service of Process
  6. Franchise Seller Disclosure Form
  7. Consent of Accountant
  8. Franchise Disclosure Document (including an audited financial statement)
  9. The $400 initial application fee.

The process for registration typically takes several weeks, and Minnesota generally doesn’t review the disclosures provided in your FDD. However, it is still important to ensure that your FDD meets the requirements listed in the Franchise Act, most of which align with the federal rules.

Do I Need to Renew My Registration?

Yes, you must file your renewal for franchise registration every year within 120 days of the end of your fiscal year. If you fail to do so, your registration will be cancelled, and you will have to file a new initial registration application. Your renewal application must contain everything required for your initial application, except that you must submit a blacklined FDD showing the changes made from the previous year. You don’t need to submit a “clean” copy of the most recent FDD. Additionally, the fee for renewing is only $200, but there is an additional $100 fee if any material changes are made from the previous year. Generally, franchisors do have changes that are considered material, so it’s best to plan on your renewal fee being $300.

What About Amendments to My FDD?

If you make a material change to your FDD, you must amend your franchise registration in Minnesota within 30 days of making said change. The amendment application only needs to contain the Uniform Franchise Registration Application, the certification page, and the blacklined portions of the FDD where the material changes occurred. You will also be required to pay the $100 amendment filing fee. After submitting your amendment application, it will be reviewed by a Department analyst who will either require changes be made to the application or issue an Order of Amendment. The Department lists a few examples of what would constitute a material change, including:

  1. Terminating or failing to renew 10% of franchisees, or 10% of franchisees in Minnesota, in a 3-month period.
  2. Changes in control, corporate name, or state of incorporation of the franchisor.
  3. The franchisor purchasing 10% of its franchises in a 3-month span.
  4. Adding a product that requires franchisees to invest more than 20% of their current average investment.
  5. Removing a product that accounts for more than 20% of franchisee’s average gross sales.

Does Minnesota Have Financial Assurance Requirements?

Yes, during your registration process, if the state determines that you have not demonstrated adequate financial arrangements to fulfill your obligations, you will be required to escrow or impound franchise fees you receive. You may also have the option to obtain a surety bond in lieu of escrow or impoundment.

Are There Any Exemptions to Registration?

Minnesota does provide several scenarios in which a franchisor will be exempt from registering its franchise with the state. The following situations qualify for exemption from registration:

  1. Sales made by franchisees (provided it is only done once in a 12-month period)
  2. Transactions made by executors, administrators, sheriffs, guardians, conservators, receivers, or trustees in bankruptcy
  3. Offers or sales by banking or other financial organizations
  4. Securities currently registered in Minnesota
  5. Sales of fractional franchises
  6. Sale of a franchise to a non-Minnesota resident where the business will not be operated in Minnesota
  7. The offer or sale of a franchise, excluding area franchises, provided that:
    a. The franchisor does not make more than one sale pursuant to the exemption during any 12-month period.
    b. The franchisor has not advertised to the franchise for sale to the general public.
    c. The franchisor deposits all franchise fees into an escrow account until it fulfills all of its pre-opening obligations.
    d. The franchisor provides the Department with at least 10 business days’ notice of its intent to rely on the exemption.

Does Minnesota Have Other Laws Related to Franchising?

Minnesota does have additional laws on top of registration affecting the franchise relationship. First, franchisors are prohibited from requiring litigation to be conducted outside of Minnesota, requiring franchisees to waive the right of a jury trial, or require franchisees to consent to liquidated damages. Additionally, franchisors must give franchisees 90 days’ notice of their intent to terminate the franchise agreement and allow the franchisee 60 days to cure the default. If the franchisor does not intend to renew the franchise agreement, it must provide the franchisee with 180 days’ notice of nonrenewal. Franchisors cannot use franchise agreement provisions that require the franchisee to sign a general release.

On top of that, Minnesota requires franchisors to submit copies of advertisements that they intend to distribute to Minnesota residents. This does not include advertisements in national publications that are not directed at Minnesota. Franchisors must submit their advertisements to the Department at least 5 business days before publication. If the Department does not provide written notice that it is disallowing the advertisement within 3 business days, it is considered to have approved the advertisement – the Department will not issue a statement approving it. As for the advertisements themselves, they must contain the name and address of the person making the advertisement, the name or primary commercial symbol of the franchisor, and the Minnesota registration number assigned to the franchisor by the Department of Commerce.

Fun Fact: Minnesota is well known for having rather…unpleasant weather in the winter. It makes sense then that the city of Minneapolis has the largest network of skyways in the world! For those of you who are wondering, what is a skyway, it is an elevated, enclosed walkway that allows people to move between buildings without going outside. The city has over 9 miles of them!