International Issues

AuthorJeffrey A. Brimer, Lucie Guyot, and Kenneth S. Levinson
This chapter will address aspects of mergers and acquisitions of franchise
companies when one of the parties to the transaction is not a U.S.‑based
company. The subjects covered in this chapter include franchise registra
tion and disclosure issues; transaction structure and due diligence issues;
tax issues; dispute resolution; and other U.S. and foreign laws that affect
mergers and acquisitions and aspects of operating in multiple jurisdic
tions after a merger or acquisition with a foreign company has occurred.
Because it is beyond the scope of this book to cover the laws of all countries,
the authors have highlighted situations in various countries to illustrate
examples of the types of issues that may arise under these countries’ and
possibly other countries’ laws, rules, regulations, customs, and practices.
U.S. federal and state franchise registration and disclosure obligations
that are required to be provided to U.S.‑based prospective franchisees
in connection with mergers and acquisitions of companies located in
the U.S. are covered more specically in other chapters of this book.1
1. See chapters 1 and 3. In general, the fact that the acquirer or target in
a merger or acquisition is not a U.S.‑based company does not affect the type
and timing of information that has to be provided to U.S.‑based prospective
International Issues
Jeffrey A. Brimer, Lucie Guyot, and Kenneth S. Levinson 9
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This part of this chapter will address franchise registration and disclosure obli‑
gations in other countries that may be affected by a merger or acquisition by or
with a U.S. or foreign‑based franchisor.2
A. Application of U.S. Franchise laws
In the United States, disclosure obligations in connection with the offer and sale
of a franchise stem from federal disclosure obligations under the FTC Franchise
Rule and state‑specic franchise legislation. The franchise disclosure requirements
under the Amended FTC Franchise Rule apply only to the offer or sale of a franchise
is to be located within the U.S. or its territories.
Nevertheless, even if a merger
or acquisition is with or by a foreign entity, if the U.S. requirements for disclosure
under the FTC Franchise Rule and state‑specic franchise legislation require dis
closure of the transaction, then the franchisor’s Franchise Disclosure Document
(FDD) must include the information required to be disclosed about the transaction.4
The Amended Rule, however, does not preempt state or local franchise laws5
and, depending on the circumstances, several of the state franchise disclosure
laws may require that a franchisor provide pre‑sale disclosures in connection
with an international merger or acquisition.
California, Hawaii, Indiana, Mary
land, and Wisconsin require disclosure in connection with a franchise that will
be operated outside of the U.S. if the franchisee is domiciled in the state.
nesota and Rhode Island require disclosure if the franchisee is domiciled in the
state or actually present in the state.8 Illinois, New York, North Dakota, Oregon,
South Dakota, and Washington require disclosure if the franchisee is domiciled
in the state or an offer is made or accepted in the state.
The exemptions from
2. This chapter is not intended to be an exhaustive review of foreign franchise reg‑
istration and disclosure laws. For more information about international franchising, see
A.B.A. Forum committee on FrAnchising, internAtionAl FrAnchise sAles lAWs (Michael K. Lindsey
& Andrew P. Loewinger eds. 2011); A.B.A. F
, F
internAtionAl FrAnchising (William Woods ed., 2d ed. 2012).
3. 16 C.F.R. §436.2 (2013).
4. See supra note 3.
5. 16 C.F.R. §436.10 (2013) (“The FTC does not intend to preempt the franchise
practices laws of any state or local government, except to the extent of any inconsistency
with Part 436. A law is not inconsistent with Part 436 if it affords prospective franchisees
equal or greater protection, such as registration of disclosure documents or more exten‑
sive disclosures.”).
6. <
. c
. c
§31105; h
. r
. s
. §482E.‑4; i
. c
§2; md. code Ann., Bus. reg. 14‑203 (2014); Wis. Admin. code §32.05(1)(d).
7. See supra note 3.
minn. stAt. §80C.03(h) (2013); r.i. gen. lAWs §19‑28.1‑7 (2013).
9. 815 ill. comp. stAt. 705/10 (2013); n.y. gen. Bus. lAW §681(12)(a) (2013); n.d. cent.
§51‑19‑02(14)(b)(1) (2013); o
. r
. s
. §650.015(1) (2014); s.d. c
17 (2013); WAsh. rev. code §19.100.020 (2013).
Mergers & Acquisitions of Franchise Companies, Second Edition276
Vines_Mergers_20140521_13-42 FINAL.indd 276 6/3/14 1:26 PM
disclosure for businesses to be operated or franchisees located outside the state
in Minnesota, Maryland, Rhode Island, and Wisconsin require that the offer and
sale be in compliance with the laws of the foreign jurisdiction.10
In limited circumstances, several state business opportunity laws could impose
a disclosure requirement for an international franchise sale. For example, the
Ohio business opportunity statute exempts a sale that “complies in all material
respects” with the FTC Franchise Rule.
Prior to the 2012 amendments to the
Ohio statue, it seemed clear that the intent of the Ohio business opportunity law
was to exempt franchises; the amendment to the statute claried this point. Fran
chisors in Ohio or with an international transaction with a connection to Ohio
should assess whether the business opportunity statute requires disclosure. In
addition, for franchisors without a federally registered trademark, state business
opportunity laws that only exempt franchises with a federally registered trade‑
mark could also impose a disclosure requirement.12
Although many international transactions will be exempt from disclosure under
U.S. federal law, franchisors need to be aware of the potential disclosure obliga‑
tions that arise under state franchise and business opportunity laws and should
also consider any exemptions to disclosure that may apply in the specic cir
cumstances of an international franchise transaction. The fact that the target or
acquiring company is a foreign‑based company does not affect the U.S.‑based
franchisor’s obligations with regard to disclosure or a franchise registration
amendment under federal or state law.13 Therefore, once a disclosure or amend‑
ment obligation arises, the franchisor must amend its FDD and, where necessary,
state franchise registrations.
B. Foreign Franchise Disclosure and Registration
Franchise registration, disclosure, and relationship laws have been adopted by
numerous countries around the world. See the chart in Appendix H for a list of
10. minn. stAt. §80C.03(h); md. code Ann., Bus. reg. §14‑203 (2013); r.i. gen. lAWs
§19‑28.1‑7 (2013); Wis. Admin. code §32.05 (2014).
ohio rev. code Ann. §1334.13 (amended 2012). For more information in the Ohio
Business Opportunity Law, see G. Jack Donson, What All Franchise Lawyers Should Know
About the Recent Changes to Ohio’s Business Opportunity Law, 16 the FrAnchise lAW., No. 1
(2013). For a more complete list of the state business opportunity statutes that may apply,
see Carl Zwisler, New Franchise Rule Eases International Franchising, 26 FrAnchise l.J. 163,
167–70 (2007).
12. See, e.g., conn. gen. stAt. §36b‑61 (2013); Carl Zwisler, New Franchise Rule Eases
International Franchising, 26 FrAnchise l.J. 163, 167–70 (2007).
13. See Chapters 1 and 3.
277International Issues
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