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What Do I Need To Do To Qualify For A Fractional Franchise Exemption?

In order to qualify for a fractional franchise exemption by the terms in the FTC Franchise Rule you need to meet the following two conditions:

  • The franchisee with which you enter into a relationship has been "in the business represented by the franchise more than 2 years" and
  • the "sales arising from the relationship represents no more than 20 percent of the sales in dollar volume of the franchisee"

So consider that fractional franchising is a "limited" exemption to the federal franchise rule and is not followed by all states. Fractional franchising is extremely limited and requires an analysis and certain assumptions about your business model, your franchisees and the sources of revenue that will be generated by your franchisees. If you plan on proceeding with a fractional franchise exemption you need to proceed with caution and carefully evaluate your expansion plans.

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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