North Carolina Bill Would Amend Business Opportunity Act to Include Franchises

North Carolina has a pending bill, called the North Carolina Franchisee and Business Opportunity Purchasers Protection Act, that would require franchisors to comply with the FTC Franchise Rule.

If passed, franchisors will have to file 2 copies of the required disclosure document with the North Carolina Secretary of State. One of the remedies afforded to franchisees under the bill is the right to void the agreement (in addition to seeking damages) in cases involving untrue or misleading statements, disclosure violations, or other noncompliance. The bill provides for certain exemptions that mirror those in the FTC Franchise Rule and for large franchisors.

A franchisor will have to establish either a surety bond or trust account if the franchisor makes any of the following representations in the pre-sale process: (1) that the prospective franchisee will derive income from the franchise that exceeds the price paid for the franchise; or (2) that the franchisor will refund all or part of the price paid for the franchise, or repurchase any of the products, equipment, supplies or chattels supplied by the franchisor if the franchisee is unsatisfied and pays to the seller an initial, required consideration that exceeds $200. This last provision is troublesome for franchisors that offer to refund some or all of the initial franchise fee if the franchisee fails the initial training program or is unable to locate a suitable site in a timely manner.

House Bill 2036 passed its first reading and was referred to the Committee on Commerce, Small Business, and Entrepreneurship on May 26, 2010.