Business Regulation (GBR) — Title 14. Business Opportunities, Franchises, and Multilevel Distribution Companies

the seller or a person recommended or referred by the seller provides to the buyer products, equipment, supplies, or services that enable the buyer to start a business;

the buyer is required to pay the seller or a person recommended or referred by the seller $300 or more during the period beginning any time before commencing operations and ending 6 months after commencing operations of the business; and

the seller represents, directly or indirectly, orally or in writing, that:

promotional literature, brochures, pamphlets, or advertising materials;

training regarding the promotion, operation, or management of the business opportunity; or

operational, managerial, or financial guidelines or assistance.

the offeree or buyer is a resident of the State;

the business opportunity will be or is operated in the State;

the offer to sell is made in the State; or

the offer to buy is accepted in the State.

For purposes of this section, an offer to sell is made in the State, whether or not either party is then present in the State, if the offer:

For purposes of this section, an offer to sell is not made in the State only because the publisher circulates or there is circulated on the publisher’s behalf in the State:

For purposes of this section, an offer to buy is accepted in the State if acceptance:

For purposes of this section, acceptance is communicated to the offeror in the State, whether or not either party is then present in the State, if:

a sale of an ongoing business if the owner of the business sells and intends to sell only that one business opportunity;

a not-for-profit sale, for less than $500, of sales demonstration equipment, materials, or samples;

an offer to sell or sale of a franchise registered or exempt from registration under Subtitle 2 of this title;

an offer to sell or sale of a business if the offer or sale is regulated under the Maryland Gasohol and Gasoline Products Marketing Act or the federal Petroleum Marketing Practices Act;

an offer to sell or sale of a business opportunity with a marketing plan made in conjunction with the licensing of a federally registered trademark or service mark, provided that the seller has a minimum net worth of $1,000,000 as determined on the basis of the seller’s most recent audited financial statement prepared within 13 months of the first offer that the seller makes in the State; or

any other sale or transaction if the Commissioner:

at least 80% of the seller is owned by one person; and

the person that owns at least 80% of the seller expressly guarantees the obligations of the seller with regard to the offer or sale of a business opportunity that the seller seeks to exclude under this paragraph.

Whenever the Commissioner determines that a person has engaged or is about to engage in an act or practice that constitutes a violation of this subtitle or a violation of a regulation adopted or order passed under this subtitle, the Commissioner may, without a prior hearing, pass a summary order directing the person to cease and desist from engaging in the activity that constitutes a violation.

The summary order shall provide:

Whenever the Commissioner determines after notice and a hearing that a person has engaged in any act or practice constituting a violation of this subtitle, the Commissioner may in the discretion of the Commissioner and in addition to taking any other action authorized under this subtitle:

The person subject to the cease and desist order may waive the right to a hearing.

If a person subject to a cease and desist order waives the right to a hearing, the Commissioner is not required to hold a hearing to take any action under subsection (a)(3) of this section.

Whenever the Commissioner determines that any person has engaged in or is about to engage in an act or practice constituting a violation of this subtitle or a violation of a regulation or order under this subtitle, the Commissioner may sue in the circuit court to obtain one or more of the following remedies:

The Commissioner may not be required to post a bond in any action under this section.

tend to incriminate the person; or

subject the person to a penalty or forfeiture.

If a person claims the privilege against self-incrimination as to a specific subject, and is then compelled to testify or produce evidence on that subject, the person may not be prosecuted or subjected to a penalty or forfeiture in connection with that subject.

A person who testifies is not exempt from prosecution and punishment for perjury or contempt committed while testifying.

a uniform franchise offering circular prepared in accordance with the guidelines adopted by the North American Securities Administrators Association, Inc., as amended through January 1, 1996;

a disclosure document prepared in accordance with the Federal Trade Commission rule entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” under 16 C.F.R. Part 436;

a disclosure document prepared in accordance with § 14-114 of this subtitle; or

any other document that the Commissioner specifies by regulation or order.

the cover sheet required under § 14-114(b) of this subtitle;

the consent to service of process required under subsection (c) of this section; and

the filing fee required under subsection (d) of this section.

Every seller shall file, in a form that the Commissioner requires, an irrevocable consent appointing the Commissioner as the seller’s registered agent in any noncriminal suit, action, or proceeding against the seller or the successor or personal representative of the seller that arises under this subtitle.

After the consent has been filed, the consent has the same force and validity as if served personally on the person filing the consent.

Service may be made by delivering a copy of the process to the office of the Commissioner.

Service made under paragraph (3) of this subsection is not effective unless:

A business opportunity offering registration becomes effective at midnight on the 10th business day after the day on which the seller files all required documents for registration, provided that no order has been passed or proceeding is pending under § 14-119 of this subtitle.

By order, the Commissioner:

a heading, in boldface capital letters in 10–point or larger type, that states “disclosure required by Maryland law”;

under the heading, in 10–point or larger type, the following statement: “The State of Maryland has not reviewed and does not approve, recommend, endorse, or sponsor any business opportunity. The information in this disclosure statement has not been verified by the State. If you have any questions about this investment, see an attorney before you sign a contract or contact the Division of Securities in the Office of the Attorney General. You are to be given 10 business days to review this document before signing any contract or agreement or making any payment to the seller or the seller’s representative.”; and

the current address and telephone number of the Division of Securities.

the name and address of the seller;

whether the seller is doing business as an individual, partnership, or corporation;

the names under which the seller has done, is doing, or intends to do business;

the name of any parent or affiliated company that will engage in business transactions with buyers or that takes responsibility for statements of the seller;

the name, address, and title of each of the seller’s officers, directors, trustees, general partners, general managers, principal executives, and others responsible for the seller’s activities that relate to the sale of business opportunities;

the names and residential addresses of the salespersons who engage in the sale or offer to sell a business opportunity in the State;

prior business experience of the seller relating to business opportunities, including:

a full and detailed description of the acts and services that the seller agrees to perform for the buyer;

whether the seller or any person identified in item (5) of this subsection has filed for bankruptcy, been adjudged bankrupt, been reorganized due to insolvency, or was an owner, principal officer, or general partner of any other person that has filed bankruptcy, been adjudged bankrupt, or was reorganized due to insolvency during or within the last 7 years;

a copy of the form of agreement proposed;

the conditions of any financing arrangement offered directly or indirectly by the seller or an agent or affiliate of the seller;

whether the buyer receives an exclusive territory;

a complete description of any training that the seller promises, including the length of the training;

a complete description of:

a complete description of any licenses or permits that are necessary in order for the buyer to operate or engage in the business opportunity;

if the seller gets a surety bond under § 14–115 of this subtitle, the following statement, or a similar statement required by the Commissioner: “As required by Maryland law, the seller has secured a bond issued by _____� (name and address of surety company), a surety company authorized to do business in the State. Before signing a contract to buy this business opportunity, you should ask the surety company about the current status of the bond.”;

if the seller establishes a trust account under § 14–115 of this subtitle, the following statement, or a similar statement required by the Commissioner: “As required by Maryland law, the seller has established a trust account _____� (account number) with _____� (name and address of bank or savings institution). Before signing a contract to buy this business opportunity, you should ask the bank or savings institution about the current status of the trust account.”;

the following statement: “If the seller fails to deliver the products, equipment, or supplies necessary to begin substantial operation of the business within 45 days after the delivery date stated in your contract, you may notify the seller in writing and demand that the contract be canceled.”;

if the seller makes a statement about sales, earnings, or range of sales or earnings that may be made through the business opportunity, a statement of:

a statement of:

a copy of the most recent audited financial statement of the seller, prepared within 13 months after the date of the first offer in the State, together with a statement of any material changes in the financial condition of the seller from the date of the most recent audited financial statement;

a list of states in which this business opportunity is registered;

a list of states in which the disclosure statement is on file;

a list of states that have denied, suspended, or revoked the registration of this business opportunity;

a section entitled “Risk Factors” containing a series of concise statements summarizing the principal factors that make this business opportunity a high risk or of a speculative nature, each statement including a cross–reference to the page on which further information regarding that risk factor may be found in the disclosure document; and

any other information that the Commissioner requires by regulation or order.

get a surety bond in favor of the State from a surety company authorized to do business in the State; or

establish a trust account in favor of the State with an insured bank or savings institution in the State.

A person may bring an action against the bond or trust account to recover damages resulting from:

The surety or trustee is liable only for actual damages up to the amount of the bond or trust account.

files with the Commissioner:

pays a renewal fee of $100.

the terms and conditions of payment;

a full and detailed description of the acts or services that the seller agrees to perform for the buyer;

the address of the seller’s principal office;

the name and address of the seller’s resident agent; and

the approximate date that the seller will deliver to the buyer any products, equipment, or supplies.

any provision of this subtitle or any order or condition lawfully imposed under this subtitle has been violated, in connection with the business opportunity by:

except as provided in paragraph (4) of this subsection, the business opportunity registered or sought to be registered is the subject of an order denying, suspending, or revoking a registration or a permanent or temporary injunction of any court of competent jurisdiction;

the seller’s enterprise or method of business, or that of the business opportunity, includes or would include activities that are illegal where performed;

the business opportunity or the offering of a business opportunity has worked or tended to work a fraud upon purchasers or would so operate;

there has been a failure to file any documents or information required by § 14-113.1 of this subtitle; or

the seller’s literature or advertising is misleading, incorrect, incomplete, or deceptive.

The Commissioner may enter a denial order if the Commissioner finds that the order is in the public interest and the seller has failed to pay the proper registration fee.

The Commissioner shall vacate any such order when the deficiency has been corrected.

institute a proceeding against an effective registration under subsection (a)(3) of this section more than 1 year after the date of the order or injunction relied on; or

pass an order under subsection (a)(3) of this section on the basis of an order or injunction entered under any other state act unless that order or injunction was based on facts which would currently constitute grounds for an order under this section.

that the order has been entered;

the basis for the order; and

that within 15 days after the day on which the Commissioner receives a written request by the seller, the matter will be set down for a hearing.

If a seller violates a provision of §§ 14-120 through 14-125 of this subtitle, the buyer, within 1 year after the date of a contract for the sale of a business opportunity:

On receipt of the refund, the buyer shall make available to the seller any products, equipment, or supplies received from the seller at:

However, the buyer may not be unjustly enriched by exercising a remedy under this subsection.

a violation of this subtitle; or

the seller’s breach of a contract for the sale of a business opportunity.

is published in connection with an offer to sell or sale of a franchise; and

is:

“Franchise” means an expressed or implied, oral or written agreement in which:

“Franchise” includes an area franchise.

“Franchise fee” means a charge or payment that a franchisee or subfranchisor is required or agrees to pay for the right to enter into a business under a franchise agreement.

“Franchise fee” includes payment for goods or services.

“Franchise fee” does not include:

franchising has played a role in the State’s economy by enabling residents to open and operate businesses in the State;

the widespread sale of franchises, while offering opportunities to State residents, also involves complex agreements and substantial investments that can create and have created many investment and business risks for franchisees, franchisors, and subfranchisors; and

franchisees may suffer losses when the franchisee has not been given complete and accurate information about:

give each prospective franchisee necessary information about any franchise offer;

promote honesty, transparency, and accountability in the offer and sale of franchises;

prevent practices that would result in fraud or a likelihood that the franchisor’s representations would not be fulfilled;

protect the franchisor–franchisee relationship; and

support the continued growth of franchising as a business model in the State.

the franchisee must pay a franchise fee of more than $100; and

For purposes of this section, an offer to sell is made in the State if the offer:

For purposes of this section, an offer to sell is not made in the State only because the franchisor circulates or there is circulated on the franchisor’s behalf in the State an advertisement in:

For purposes of this section, an offer to buy is accepted in the State when acceptance is communicated to the offeror in the State.

For purposes of this section, acceptance is communicated to the offeror in the State when:

determine if a person has violated this subtitle or a regulation adopted or order passed under it;

adopt regulations or forms under this subtitle; or

enforce this subtitle; and

A request for an interpretive opinion shall be in writing.

The requester shall pay a fee of $100.

Whenever the Commissioner finds that a person has violated or is about to violate this subtitle or a regulation adopted or order passed under it, the Commissioner may order the person to cease and desist from the further offer to sell or sale of the franchise until the offer or sale complies with this subtitle.

After passage of a cease and desist order, the alleged violator may submit to the Commissioner a written request for a hearing.

The hearing shall begin:

Unless there is a timely hearing, the cease and desist order is rescinded.

Whenever the Commissioner finds that a person has violated or is about to violate this subtitle or a regulation adopted or order passed under it, the Commissioner may sue in the circuit court to enjoin the violation or enforce this subtitle or the regulation or order.

The court shall:

The court may exercise all equitable powers necessary for this purpose, including:

The court may not require the Commissioner to post bond.

The Commissioner may refer to the State’s Attorney evidence of a criminal violation of this subtitle.

With or without the referral of evidence, a State’s Attorney may bring appropriate criminal proceedings under this subtitle.

testify; or

produce evidence.

tend to incriminate the person; or

subject the person to a penalty or forfeiture.

If a person claims the privilege against self-incrimination as to a specific subject, and is then compelled to testify or produce evidence on that subject, the person may not be prosecuted or subjected to a penalty or forfeiture in connection with that subject.

A person who testifies is not exempt from prosecution and punishment for perjury or contempt committed while testifying.

a transaction by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian, or conservator;

an offer to sell or sale of a franchise that is substantially similar to a franchise already owned by the offeree or buyer; and

any other transaction that the Commissioner exempts by regulation because:

The registration requirement of this section does not apply to the offer to sell or sale of a franchise by a franchisee for the franchisee’s own account, or the offer to sell or sale of the entire area franchise owned by a subfranchisor for the subfranchisor’s own account.

A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.

The Commissioner may require by regulation that a franchisor or subfranchisor who claims under subsection (b)(3) of this section to be exempt from the registration requirements of this section:

The franchisor or subfranchisor shall sign and verify the notice of claim of exemption.

file with the Commissioner:

pay an application fee of $500.

are found by the Commissioner to include disclosure requirements similar to those of this subtitle; and

are:

the material information set forth in the application for registration, as required by regulation of the Commissioner; and

any other disclosures that the Commissioner requires.

the name of the franchisor;

the name under which the franchisor does or intends to do business;

the name of any parent or affiliated company that engages in business transactions with franchisees;

the address of the principal office of the franchisor;

the name and address of the resident agent of the franchisor;

whether the franchisor does business as an individual, partnership, or corporation;

information about the identity and business experience of persons affiliated with the franchisor, as the Commissioner requires;

the length of time the franchisor has:

a recent financial statement of the franchisor and a statement of each material change in the financial condition of the franchisor since the financial statement was made;

a copy of the typical franchise agreement used or proposed for use in the State;

the franchise fee or, if the franchise fee is not the same in each case, the formula that the franchisor uses to set the amount of the franchise fee and the way the franchisor will apply the franchise fee;

any payment other than a franchise fee that the franchisee or subfranchisor must pay to the franchisor, including any royalty or payment that the franchisor collects wholly or partly for a third party;

the conditions under which the franchisor may terminate, refuse to renew, or repurchase the franchise;

a description of all goods, fixtures, and services that, under the franchise agreement or by practice, the franchisee or subfranchisor must buy from the franchisor or a designee of the franchisor;

whether, under the franchise agreement or by practice, the franchisee is limited in the goods or services that the franchisee may offer to customers;

the conditions of any financing arrangement offered directly or indirectly by the franchisor or an agent or affiliate of the franchisor;

any past or present practice or any intent of the franchisor to sell, assign, or discount to a third party, wholly or partly, a note, contract, or other obligation of the franchisee or subfranchisor;

a copy of any statement of estimated or projected franchisee earnings prepared for presentation to prospective franchisees, subfranchisors, or others and a statement of the information on which the estimation or projection is based;

any compensation or other benefit given or promised to a public figure that arises wholly or partly from:

the number of franchises currently operating or proposed to be sold, as the Commissioner requires by regulation;

whether franchisees or subfranchisors receive an exclusive territory or area franchise;

an authorization for the Commissioner to examine the applicant’s financial records that relate to the sale of franchises;

an irrevocable consent to be sued in the State;

appointment of the Commissioner as attorney to receive service of process for the franchisor;

any other information that the franchisor wants to give; and

any other information that the Commissioner reasonably requires.

set the form and content of financial statements required under this subtitle;

state the circumstances under which consolidated financial statements may be submitted; and

state the circumstances under which financial statements shall be audited by an independent certified public accountant or other public accountant.

At the option of the franchisor, the franchisor may post an adequate surety bond as provided by regulations of the Commissioner.

The total liability of the surety under the bond may not exceed the penal sum of the bond.

noon on the 30th business day after an application for registration or the last amendment to it is filed; or

an earlier time that the Commissioner sets.

Unless registration of an offer of a franchise is renewed for a 1-year term as provided in this section, the registration expires on the first anniversary of its effective date.

However, the Commissioner by regulation or order may set a different term of registration.

Before registration expires, the registrant periodically may renew it for an additional 1-year term, if the registrant:

The registrant shall sign and verify the renewal application.

The Commissioner by order may allow a registrant to submit a renewal application after the 15th business day before expiration of the registration.

noon on the day when the previous registration is due to expire; or

an earlier time that the Commissioner sets.

There is a Maryland Franchise Disclosure Document Renewal Fast–Track Review Pilot Program.

The Commissioner shall administer the Program.

The Commissioner shall establish a standard for the review and approval of incomplete franchise disclosure documents, including franchise disclosure documents that were not submitted for participation in the Program.

The Commissioner may use a technology system to assist the review of documents as required under this section.

the number of franchise disclosure documents submitted by franchisors under the Program;

the number of franchisors that participated in the Program;

the amount of time required to administer the Program;

an analysis of whether there was any impact on franchise disclosure documents submitted outside the Program, including the amount of time required for the analysis of franchise disclosure documents that were rejected;

a description of programs in other states that address exemptions for established franchisors, including the eligibility standards by which the appropriate authority makes determinations regarding established franchisors;

an analysis of whether, and the extent to which, the Program maintains or enhances the protections afforded to prospective franchisees under the Maryland Franchise Registration and Disclosure Law, including:

information regarding the efficiency of the review of franchise disclosure documents submitted for participation in the Program and franchise disclosure documents that were not submitted for participation in the Program, including information concerning:

file promptly with the Commissioner an application to amend the registration; and

pay a fee of $100.

what constitutes a material change; and

the circumstances under which a revised prospectus shall accompany an application to amend the registration.

states that the stop order has been passed;

states the reasons for the stop order; and

informs the applicant or registrant of the right to a hearing under this section.

The applicant or registrant may submit to the Commissioner a written request for a hearing on the stop order.

The Commissioner shall schedule a hearing within 15 business days after the Commissioner receives the request unless the applicant or registrant consents to a later date.

The Commissioner may schedule a hearing even if the applicant or registrant does not request a hearing.

If a hearing is not requested and is not scheduled by the Commissioner and therefore is not held, the stop order remains in effect until the Commissioner modifies or vacates it.

If a hearing is held, after the hearing, the Commissioner may modify or vacate the stop order or extend it until the Commissioner makes a final determination.

The Commissioner may modify or vacate a stop order if the Commissioner finds that:

a franchisee who is a resident of the State; or

a franchised business that operates or will be operated in the State.

A person who sells or grants a franchise is civilly liable to the person who buys or is granted a franchise if the person who sells or grants a franchise offers to sell or sells a franchise:

In determining liability under this subsection, the person who sells or grants a franchise has the burden of proving that the person who sells or grants a franchise did not know and, in the exercise of reasonable care, could not have known of the untruth or omission.

rescind the franchise; and

make restitution to the person who buys or is granted a franchise.

Joint and several liability under this section extends to:

However, liability under this subsection does not extend to a person who did not have knowledge of or reasonable grounds to believe in the existence of the facts by which the liability is alleged to exist.

4 years after the grant of the franchise; or

2 years after the date the franchise opened to the public.

employ a device, scheme, or artifice to defraud;

make an untrue statement of a material fact or omit to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading; or

engage in an act, practice, or course of business that operates or would operate as a fraud or deceit on another person.

restrict or inhibit the right of a franchisee to join a trade association consisting of other franchisees of the same franchise; or

prohibit the right of free association among franchisees for any lawful purpose.

A person who violates subsection (b) of this section may be sued in circuit court for:

The injunctive relief may be sought from the circuit court in the county where the franchisee resides or the franchise affected by the violation conducts business.

When seeking an injunction under this section, the plaintiff may not be required to allege or prove actual damages suffered to obtain injunctive relief.

An action under this subsection must be brought within the earlier of:

that are in resalable condition; and

that the participant has been unable to sell 3 months after receipt of the goods first ordered.

a participant may cancel the contract for any reason within 3 months after the date of receipt of goods or services first ordered by written notice to the multilevel distribution company; and

on cancellation, the multilevel distribution company shall repurchase the goods.