Senate Study Bill 1226
SENATE FILE
BY (PROPOSED COMMITTEE ON
COMMERCE BILL BY
CO=CHAIRPERSONS BEHN
and WARNSTADT)
Passed Senate, Date Passed House, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act providing for the regulation of persons engaged in
2 soliciting business opportunities, including franchises.
3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
4 TLSB 2143SC 81
5 da/gg/14
PAG LIN
1 1 Section 1. Section 551A.3, subsection 3, paragraphs a and
1 2 b, Code 2005, are amended to read as follows:
1 3 a. A uniform franchise offering circular prepared in
1 4 accordance with the guidelines adopted by the North American
1 5 securities administrators association, inc., as amended
1 6 through July 1, 2004.
1 7 b. A disclosure document prepared pursuant to the federal
1 8 trade commission rule relating to disclosure requirements and
1 9 prohibitions concerning franchising and business opportunity
1 10 ventures in accordance with 16 C.F.R. } 436 or any successor
1 11 regulation.
1 12 Sec. 2. Section 551A.4, subsection 1, paragraph b, Code
1 13 2005, is amended to read as follows:
1 14 b. An offer or sale of a business opportunity which is a
1 15 franchise, provided that the seller delivers to each purchaser
1 16 at the earlier of the first personal meeting between the
1 17 seller and the purchaser, or ten business fourteen days prior
1 18 to the earlier of the execution by a purchaser of a contract
1 19 imposing a binding legal obligation on the purchaser or the
1 20 payment by a purchaser of any consideration in connection with
1 21 the offer or sale of the business opportunity, one of the
1 22 following disclosure documents:
1 23 (1) A uniform franchise=offering circular prepared in
1 24 accordance with the guidelines adopted by the North American
1 25 securities administrators association, inc., as amended
1 26 through September 21, 1983.
1 27 (2) A disclosure document prepared pursuant to the federal
1 28 trade commission rule entitled "Disclosure requirements and
1 29 prohibitions concerning franchising and business opportunity
1 30 ventures", 16 C.F.R. } 436 (1979) or any successor regulation.
1 31 For the purposes of this paragraph "b", a personal meeting
1 32 means a face=to=face meeting between the purchaser and the
1 33 seller or their representatives, which is held for the purpose
1 34 of discussing the offer or sale of a business opportunity.
1 35 EXPLANATION
2 1 Code chapter 554A regulates the promotion of business
2 2 opportunities whenever a person (seller) solicits a person
2 3 (purchaser) to make an initial investment in exchange for
2 4 products or services which purportedly will enable the
2 5 purchaser to start a business. These business arrangements
2 6 are provided under contract and much of the Code chapter
2 7 regulates how these contracts are prepared and presented to
2 8 purchasers.
2 9 Code section 551A.3 requires the seller to make formal
2 10 disclosures to potential purchasers, including by furnishing a
2 11 disclosure document to the purchaser 10 days prior to
2 12 executing a contract or receiving payment. The disclosure
2 13 document may be in a number of forms, including two standard
2 14 nonstate forms: (1) a uniform franchise offering circular
2 15 prepared in accordance with the guidelines adopted by the
2 16 North American securities administrators association, inc., or
2 17 (2) a document prepared according to rules adopted by the
2 18 federal trade commission. The Code section ties these
2 19 requirements to preexisting forms established on a date
2 20 certain (July 1, 2004) or according to a federal citation (in
2 21 the code of federal regulations). The bill eliminates this
2 22 requirement which ties the forms to a specific date or
2 23 citation. The effect of the amendment is that state law would
2 24 adopt by reference a form or a change in a form prepared by
2 25 the foreign entities.
2 26 Code section 551A.4 provides that certain transactions are
2 27 exempt from the disclosure requirements, and one of these
2 28 exemptions concerns a business opportunity for a franchise
2 29 under certain conditions. The person offering to sell the
2 30 franchise must still deliver to the purchaser one of the
2 31 standard nonstate disclosure forms prior to the execution of
2 32 the contract or receipt of payment. Again, the bill
2 33 eliminates the reference to a date certain or a specific legal
2 34 reference with the same effect as the amendment to Code
2 35 section 551A.3. In addition, the bill extends the period of
3 1 disclosure from 10 business days to 14 calendar days prior to
3 2 execution of the contract or receipt of payment.
3 3 LSB 2143SC 81
3 4 da:rj/gg/14.1