What Do McDonalds, Burger King and SoccerTots Have in Common?: The Wisconsin Franchise Investment Law
The “Wisconsin Franchise Investment Law,” Wis. Stat. chapter 553, governs all franchise business opportunities in the State of Wisconsin. Unfortunately, most manufacturers, distributors, licensors and licensees do not know that the law governs more than just McDonalds®, Burger King® and Dairy Queen®. The Wisconsin Franchise Investment Law and most other states’ franchise laws do not use the term “franchise” in a manner consistent with the meaning that most ordinary people or businesses attach to it. The Wisconsin Franchise Investment Law regulates a broader number of businesses opportunities beyond the national franchises we generally think of when we hear the word “franchise.” Consequently, many manufacturers and suppliers wrongfully believe that they are not subject to the Wisconsin Franchise Investment Law.
There are many surprising examples of Wisconsin and other states applying their franchise investment laws to unsuspecting businesses such as distributors of wine, recycling machines, computer hardware and software resellers, and to sales consultants selling lending services to potential borrowers. For example, in one enforcement action the Department of Financial Institutions (DFI) determined that SoccerTots, Inc.’s license agreement was a franchise that was sold in violation of the Wisconsin Franchise Law. SoccerTots’s sold a license that allowed the purchaser to use the name SoccerTots, its training materials and its marketing materials to start a child soccer program for profit. Since the person in Wisconsin paid a fee for the right to do business under the name SoccerTots and operated the business according to SoccerTots’ marketing plan, the DFI determined that it was a franchise regulated by Wisconsin law. The DFI determined that SoccerTots, Inc. violated the law by selling the franchise without complying with the franchise disclosure requirements.
The Wisconsin Franchise Investment Law states that a franchise is a type of business arrangement where a person (the franchisee) purchases the right to engage in selling or marketing a product or service according to a specific plan from the person or entity offering that right for sale (the franchisor). To be a franchise the arrangement must include three elements:
- A marketing plan, designed by and provided by the franchisor
- A trademark association (logo or name), provided by the franchisor
- A franchise fee, paid by the franchisee to the franchisor
Without these three elements, the business is not a franchise and not governed by the Wisconsin Franchise Investment Law.
If a business wants to sell franchises in Wisconsin, the business or franchisor must register the franchise with the DFI. As part of registration, franchisors are required to provide the DFI with a copy of the disclosure document that will be provided to all potential purchasers. The disclosure document must contain all relevant information regarding the franchisor and its business in written form. While a franchisor may advertise or make offers before the franchise is registered, the franchise must register in order to sell a franchise. The DFI may suspend or revoke the registration of a franchise for a person acting on behalf of the franchise for many reasons, including making oral or written untrue statements, not disclosing convictions or civil judgments against the franchise representative, or failing to make the proper filing fees. Any franchisor or its representative who violates the Wisconsin Franchise Investment Law may be liable to the franchisee and may also be subject to an investigation or criminal penalties.
Axley Brynelson law firm’s Distribution and Franchise Team has a breadth of experience in representing franchisors and franchisees in all aspects of the Wisconsin Franchise Investment Law, including preparation of the disclosure documents, registration with DFI, regulatory compliance issues, drafting franchise agreements, DFI enforcement actions and franchise terminations.
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