What Is the Fractional Franchise Exemption?
The fractional franchise exemption is an exemption from the Federal Franchise Rule. If a franchise opportunity qualifies as a fractional franchise, then it may be exempt from FDD disclosure requirements. This limited exemption applies to franchise opportunities where the franchisee possesses certain levels of industry and business experience and where the franchise being sold will provide a limited supplement to the franchisee’s existing business. Typically, revenue from the fractional franchise cannot exceed 20% of the franchisee’s overall revenue. Not every state recognizes the fractional franchise exemption. Before relying on a fractional franchise exemption, there must be a careful legal analysis of the opportunity being sold and how it relates to the franchisee’s existing business.