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