§ 51-19-04 — Exemptions

1. There must be exempted from the provisions of section 51-19-03 the offer to sell, the
offer to purchase, the sale, and the purchase of a franchise if the franchisor:
a. Has a net worth on a consolidated basis according to its most recent audited
financial statement of not less than ten million dollars; or the franchisor has a net
worth according to its most recent financial statement of not less than one million
dollars and is at least eighty percent owned by a corporation which has a net
worth on a consolidated basis according to its most recent audited financial
statement of not less than ten million dollars;
b. Has had at least twenty-five franchisees conducting business at all times during
the five-year period immediately preceding the offer or sale; or has conducted
business which is the subject of the franchise continuously for not less than five
years preceding the offer or sale; or if any corporation which owns at least eighty
percent of the franchisor has had at least twenty-five franchisees conducting
business at all times during the five-year period immediately preceding the offer
or sale; or such corporation has conducted business which is the subject of the
franchise continuously for not less than five years preceding the offer or sale;
c. Except as provided in subdivision d, discloses in writing to each prospective
franchisee, at least seven days prior to the execution by the prospective
franchisee of any binding franchise or other agreement, or at least seven days

prior to the receipt of any consideration, whichever occurs first, the following
information:
(1) The name of the franchisor, the name under which the franchisor is doing or
intends to do business, and the name of any parent or affiliated company
that will engage in business transactions with franchisees.
(2) The franchisor's principal business address and the name and address of its
agent in this state authorized to receive service of process.
(3) The business form of the franchisor, whether corporate, limited liability
company, partnership, or otherwise.
(4) The business experience of the franchisor, including the length of time the
franchisor has conducted a business of the type to be operated by the
franchisee, has granted franchises for such business, and has granted
franchises in other lines of business.
(5) A copy of the typical franchise contract or agreement proposed for use or in
use in this state.
(6) A statement of the franchise fee charged, the proposed application of the
proceeds of such fee by the franchisor, and the formula by which the
amount of the fee is determined if the fee is not the same in all cases.
(7) A statement describing any payments or fees other than franchise fees that
the franchisee or subfranchisor is required to pay to the franchisor, including
royalties and payments or fees that the franchisor collects in whole or in part
on behalf of a third party or parties.
(8) A statement of the conditions under which the franchise agreement may be
terminated or renewal refused, or repurchased at the option of the
franchisor.
(9) A statement as to whether, by the terms of the franchise agreement or by
other device or practice, the franchisee or subfranchisor is required to
purchase from the franchisor or the franchisor's designee services, supplies,
products, fixtures, or other goods relating to the establishment or operation
of the franchise business, together with a description thereof.
(10) A statement as to whether, by the terms of the franchise agreement or other
device or practice, the franchisee is limited in the goods or services offered
by the franchisee to customers.
(11) A statement of the terms and conditions of any financing arrangements
when offered directly or indirectly by the franchisor or the franchisor's agent
or affiliate.
(12) A statement of any past or present practice of any intent of the franchisor to
sell, assign, or discount to a third party any note, contract, or other
obligation of the franchisee or subfranchisor in whole or in part.
(13) If any statement of estimated or projected franchisee earnings is used, a
statement of such estimation or projection and the data upon which it is
based.
(14) A statement as to whether franchisees or subfranchisors receive an
exclusive area or territory;
d. In the case of a material modification of an existing franchise, discloses in writing
to each franchisee information concerning the specific sections of the franchise
agreement proposed to be modified and such additional information as may be
required by rule or order of the commissioner. Any agreement by such franchisee
to such material modifications is not binding upon the franchisee if the franchisee,
within ten business days after the receipt of such writing identifying the material
modification, notifies the franchisor in writing that the agreement to such
modification is rescinded. A writing identifying the material modification is
received when delivered to the franchisee. A written notice by the franchisee
rescinding an agreement to a material modification is effective when delivered to
the franchisor or when deposited in the mail, postage prepaid, and addressed to
the franchisor in accordance with any notice provisions in the franchise

agreement, or when delivered or mailed to the person designated in the franchise
agreement for the receipt of notices on behalf of the franchisor; and
e. Has filed with the commissioner a notice of exemption and paid the fee required
by section 51-19-17 prior to the offer or sale of a franchise in this state. Any
notice of exemption and the renewal must contain the following:
(1) The name of the franchisor, the name under which the franchisor is doing or
intends to do business, and the name of any parent or affiliated company
that will engage in business transactions with franchisees.
(2) The franchisor's principal business address and the name and address of its
agent in this state authorized to receive service of process.
(3) The business form of the franchisor, whether corporate, limited liability
company, partnership, or otherwise.
(4) A copy of the typical franchise contract or agreement proposed for use or in
use in this state.
(5) Information sufficient to establish that the franchisor satisfies the exemption
conditions contained in subdivisions a and b.
Any notice of exemption remains in effect for a period of one year from the date
the notice is received by the commissioner.
2. The offer or sale of a franchise by a franchisee for the franchisee's own account or the
offer or sale of the entire area franchise owned by a subfranchisor for the
subfranchisor's own account is exempted from the provisions of section 51-19-03 if the
sale is not effected by or through a franchisor; provided, however, that no
subfranchisor may offer or sell a franchise under this subsection without first obtaining
the written approval of the commissioner. The commissioner may require that the
subfranchisor and the franchisor provide the prospective purchaser and the
commissioner with such information and disclosures as the commissioner deems
necessary or appropriate to carry out the purposes of this chapter. A sale is not
effected by or through a franchisor merely because a franchisor has a right to approve
or disapprove a different franchisee.
3. There must be exempted from the provisions of section 51-19-03 any other transaction
which the commissioner by rule exempts as not being comprehended within the
purposes of this chapter and the registration of which the commissioner finds is not
necessary or appropriate in the public interest or for the protection of investors.