Recent Changes to Illinois Franchise Laws 2021

In this article, we discuss Illinois Franchise Laws that may affect you in the year 2021, including:

• In Illinois, who regulates franchises?;

• What Should I Include in my application for FDD registration?;
• What are the Illinois FDD registration and Renewal Fees?;  
• Where send the FDD registration application be sent?;
• How long does it take to get an FDD license?;
• What types of franchise transactions in Illinois need FDD registration?; and

• Financial Assurance Registration Requirements in Illinois  

Illinois is a franchise registration state. Before offering or selling a franchise in Illinois, you must first file your franchise disclosure document (FDD) with the Illinois Attorney General's Franchise Bureau. The Franchise Bureau is responsible for overseeing the FDD registration process as well as enforcing Illinois franchise laws. The filing fee for the initial FDD registration is $500, and the annual renewal fee is $100. The registration is valid for one year and must be renewed annually, either on your one-year registration anniversary or within 120 days of the end of your fiscal year.  

The Illinois Franchise Disclosure Act, 815 ILCS 705/3, describes a franchise as any written or oral agreement that expressly or implicitly provides for the promotion, sale, or distribution of products or services: (a) pursuant to a marketing plan prescribed or recommended in large part by the franchisor; (b) that are significantly associated with the franchisor. The term "franchise fee" has a broad definition. The Illinois Franchise Disclosure Act only applies to franchise transactions that occur in Illinois, involve Illinois residents, and/or involve franchised companies that will be located or run in Illinois. Fractional franchises, on-premises concessions, certification and testing facilities, and transactions concerning the Petroleum Marketing Practices Act are all exempted or excluded from the Illinois Disclosure Act's regulatory scope.  

Franchise and FDD Registration in Illinois Frequently Asked Questions  

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In Illinois, who regulates franchises?  

The Illinois Attorney General's Franchise Bureau governs and monitors the Illinois Franchise Disclosure Act's enforcement, including required FDD registration provisions and compliance with the state's franchise relationship laws.  

What Should I Include in My Application for FDD Registration?  

The following materials must be submitted to the Administrator to obtain registration per Section 200.600 of the Administrative Code:

1. Uniform Franchise Registration Application Page, Appendix A, Illustration A;
2. Supplemental Information Page, Appendix A, Illustration B;
3. Sales Agent Disclosure Form for each sales agent employed by or affiliated with the applicant, Appendix A, Illustration C;
4. Uniform Consent to Service of Process naming the Illinois Attorney General as agent to receive service, with corporate, individual or partnership acknowledgment, Appendix A, Illustration D, E, F, G and H;
5. Certification Page, Appendix A, Illustration G;
6. Auditor's consent letter granting consent to use each audited report in the registration, Appendix A, Illustration H;
7. Uniform Franchise Offering Circular in duplicate current within 120 days and in compliance with UFOC Guidelines. Updated information pertaining to Items 20 or 21 may be submitted as an exhibit without changing the information already in these items; and
8. A $500 nonrefundable fee payable to the State of Illinois.”

A link to the relevant section can be found here.

What are the Illinois FDD Registration and Renewal Fees?  

The initial FDD registration fee is $500, with a $100 annual renewal fee. A $100 fee is required to file an FDD amendment.  

Where send the FDD Registration Application be sent?  

FDD registration applications must be sent to the Illinois Attorney General's Franchise Bureau, 500 South Second Street, Springfield, IL 62706. The Franchise Bureau's telephone number is (217) 782–4465.  

How long does it take to get an FDD license?  

Following the completion of your registration filing, a Franchise Examiner will be appointed to review your application as well as the disclosures in your FDD. FDDs and FDD implementations are thoroughly examined by Illinois examiners.  

After the Franchise Bureau receives your application, a Franchise Examiner will be assigned to it, and you should receive an initial response within 21 days. The first response you will receive from your appointed Franchise Examiner will almost certainly inform you of FDD changes that the Examiner requires. Many of these changes would be related to the Illinois Franchise Disclosure Act and the state's franchise partnership rules. You will obtain a written notice confirming that registration has been granted once you have satisfied the Examiner's requirements. The Examiner's notice would also include information about the registration's effective date and renewal date.  

The time it takes for your registration application to be accepted will ultimately be determined by the completeness of your FDD and how quickly you react to the Examiner's comments. You should expect the process to take 8 weeks on average.  

What Types of Franchise Transactions in Illinois Need FDD Registration?  

If the franchisee lives in Illinois (even if the franchised business will be located outside the state), or if the franchise offer is made or approved in Illinois and the franchised business is or will be located within the state, the Illinois FDD registration provisions and the Illinois Franchise Registration Disclosure Act apply.  

Financial Assurance Registration Requirements in Illinois

If an Illinois examiner finds that your franchise business lacks adequate resources during the FDD registration or renewal process, the examiner will enforce financial assurance provisions as a condition of your FDD registration. Your agreement to postpone the initial franchise payment, escrowing the initial franchise fee, or the posting of a bond are all common financial assurance criteria. Many times, you will have the option to choose between these three options; however, for start-up and new franchisors, deferring the initial franchise fee is the most convenient and available option.  

Laws Governing Franchise Relationships in Illinois  

Franchisee partnership duties are placed on franchisors by Illinois franchise law. These laws forbid the franchisor from doing certain acts, such as treating franchisees unfairly and restricting the franchisor's termination and non-renewal rights. A list of some of Illinois' franchise relationship responsibilities and prohibitions is given below:  

1. In Illinois, it is unlawful for a franchisor to prohibit or limit a franchisee's participation in a trade group;  

2. No Disparate Treatment – In Illinois, it is illegal for a franchisor to “unreasonably and materially discriminate between franchisees operating a franchised business located in [Illinois] in the charges offered or made for franchise fees, royalties, goods, services, equipment, rentals or other advertising services, if such discrimination will cause competitive harm to a franchisee who competes with a franchisee that received the benefit of the discrimination….” There are a few exceptions to this law, including differential care depending on when franchises are granted and other minor exceptions;

3. Termination Restrictions – In Illinois, terminating a franchise without reasonable cause is unlawful. When a franchisee has been issued a 30-day notice of a breach of the franchise agreement and has not cured the default, fair cause exists under Illinois law; and

4. Restrictions – In Illinois, it is illegal to refuse a franchisee the right to renew their franchise if the franchisee would be barred from running a competing company after the original franchise agreement expires. It's also unlawful to refuse a franchisee's renewal without giving the franchisee six months' notice of your decision.

In light of the COVID-19 pandemic, the Office of the Attorney General remains open, but with a smaller workforce. This can result in longer turnaround times for reviewing franchise registration and renewal records, as well as delayed responses to emails and phone calls.

Request a consultation with an Illinois Attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.

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