21VAC5-110 Retail Franchising Act Rules

REGULATIONS

Vol. 26 Iss. 16 - April 12, 2010

TITLE 21. SECURITIES AND RETAIL FRANCHISING

STATE CORPORATION COMMISSION

Chapter 110

Proposed Regulation

REGISTRAR'S NOTICE: The State Corporation Commission is exempt from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 21VAC5-110. Retail Franchising Act Rules (amending 21VAC5-110-30, 21VAC5-110-50, 21VAC5-110-85).

Statutory Authority: §§ 12.1-13 and 13.1-572 of the Code of Virginia.

Public Hearing Information: A public hearing will be scheduled upon request.

Public Comment Deadline: April 30, 2010.

Agency Contact: Garland H. Sharp, Chief Auditor, Division of Securities and Retail Franchising, State Corporation Commission, Tyler Building, 9th Floor, P.O. Box 1197, Richmond, VA 23218, telephone (804) 371-9280, FAX [phone], or email [e-mail].

Summary:

The proposed amendments (i) reflect the name changes of NASDAQ Stock Market, Inc., and Financial Industry Regulatory Authority, Inc., and (ii) require all new and renewal franchise applications to contain unaudited interim financial statements when the audited financial statements submitted with the registration application are over 120 days old.

AT RICHMOND, MARCH 23, 2010

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. SEC-2010-00021

Ex Parte: In the matter of
Adopting a Revision to the Rules
Governing the Virginia Retail Franchising Act

ORDER TO TAKE NOTICE

Section 12.1-13 of the Code of Virginia provides that the State Corporation Commission ("Commission") shall have the power to promulgate rules and regulations in the enforcement and administration of all laws within its jurisdiction. Section 13.1-572 of the Virginia Retail Franchising Act ("Franchising Act"), § 13.1-557 et seq. of the Code of Virginia, provides that the Commission may issue any rules and regulations necessary or appropriate for the administration and enforcement of the Franchising Act.

The rules and regulations issued by the Commission pursuant to the Franchising Act are set forth in Title 21 of the Virginia Administrative Code. A copy also may be found at the Commission's website: http://www.scc.virginia.gov/case.

The Division of Securities and Retail Franchising ("Division") has submitted to the Commission a proposed revision to Chapter 110 of Title 21 of the Virginia Administrative Code entitled "Retail Franchising Act Rules" ("Rules").

Proposed amendments to Rule 21 VAC 5-110-30 and Rule 21 VAC 5-110-50 add subsections requiring all new and renewal franchise applications to contain unaudited interim financial statements when the audited financial statements are over 120 days old.

Proposed amendment to Rule 21 VAC 5-110-85 F 6 updates the name of the "National Association of Securities Dealers, Inc." to "NASDAQ Stock Market, Inc."

Proposed amendment to Rule 21 VAC 5-110-85 F 13 updates the name of the "National Association of Securities Dealers Regulation, Inc." to "Financial Industry Regulatory Authority, Inc."

The Division has recommended to the Commission that the proposed revisions be considered for adoption with an effective date of July 1, 2010. The Division also has recommended to the Commission that a hearing should be held only if requested by those interested parties who specifically indicate that a hearing is necessary and the reasons therefor.

A copy of the proposed revisions may be requested by interested parties from the Division by telephone, by mail or e-mail request, and also can be found at the Division's website: www.scc.virginia.gov/srf. Any comments to the proposed rules must be received by April 30, 2010. Any request for hearing that is received and granted by the Commission will be scheduled on May 13, 2010.

Accordingly, IT IS ORDERED THAT:

(1) The proposed revisions are appended hereto and made a part of the record herein.

(2) Comments or requests for hearing on the proposed revisions must be submitted in writing to Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218, on or before April 30, 2010. Any request for hearing shall state why a hearing is necessary and why the issues cannot be adequately addressed in written comments. All correspondence shall contain reference to Case No. SEC-2010-00021. Interested persons desiring to submit comments electronically may do so by following the instructions available at the Commission's website: http://www.scc.virginia.gov/case.

(3) The proposed revisions shall be posted on the Commission's website: http://www.scc.virginia.gov/case and on the Division's website at http://www.scc.virginia.gov/srf. Interested persons may also request a copy of the proposed revisions from the Division by telephone, mail or e-mail.

(4) This Order, together with a copy of the proposed revisions, shall be sent to the Registrar of Regulations for publication in the Virginia Register.

AN ATTESTED COPY hereof shall be delivered by the Clerk of the Commission to the Division's Director, who shall forthwith provide notice of this Order via U.S. mail and e-mail to any interested persons as he may designate.

21VAC5-110-30. Registration application; documents to file; interim financial statements.

A. An application for registration of a franchise is made by filing with the commission the following completed forms and other material:

1. Uniform Franchise Registration Application page, Form A;

2. Total Costs and Sources of Funds for Establishing New Franchises, Form B;

3. Uniform Consent to Service of Process, Form C;

4. If the applicant is a corporation or partnership, an authorizing resolution if the application is verified by a person other than applicant's officer or general partner;

5. Franchise Disclosure Document;

6. Application fee (payable to the "Treasurer of Virginia"); and

7. Auditor's consent (or a photocopy of the consent) to the use of the latest audited financial statements in the Franchise Disclosure Document.

B. If the date of the most recent audited financial statements in the Franchise Disclosure Document precedes the date of the application by more than 120 days, the Franchise Disclosure Document shall also include the following financial statements prepared in accordance with generally accepted accounting principles:

1. An unaudited interim balance sheet as of a date within 120 days of the date of the application; and

2. An unaudited interim statement of income or operations for the period from the most recent audited financial statements to the date of the interim balance sheet.

B. C. The certifications made by or on behalf of the franchisor in Form A shall extend and apply to all documents and materials filed in connection with the registration application, including any documents or materials submitted to the commission subsequent to the initial filing that may be required to complete the registration application.

C. D. In addition to paper copies of the materials required by subsection A of this section, the franchisor may file one copy of the complete franchise registration application, including the Franchise Disclosure Document, on a CD-ROM in PDF format, subject to the following conditions:

1. The transmittal letter submitting the application must contain a representation that all of the information contained in the electronic file is identical to the paper documents;

2. The electronic version of the Franchise Disclosure Document must be text searchable; and

3. If the commission's review of the application results in any revision to the documents, the franchisor must submit a revised CD-ROM containing a marked and unmarked final copy of the Franchise Disclosure Document, and final copies of all other application documents. The revised CD-ROM must be accompanied by a transmittal letter as described in subdivision 1 of this subsection.

D. E. Examples of Forms A through C are printed at the end of this chapter.

21VAC5-110-50. Expiration; application to renew the registration; interim financial statements.

A. A franchise registration expires at midnight on the annual date of the registration's effectiveness. An application to renew the franchise registration should be filed 30 days prior to the expiration date in order to prevent a lapse of registration under the Virginia statute.

B. An application for renewal of a franchise registration is made by submitting the following completed forms and other material:

1. Uniform Franchise Registration Application page, Form A;

2. Updated Franchise Disclosure Document;

3. One complete copy of the amended Franchise Disclosure Document black-lined to show all additions, deletions, and other changes, using no margin balloons or color highlights; and

4. Application fee (payable to the "Treasurer of Virginia").

C. If the date of the most recent audited financial statements in the Franchise Disclosure Document precedes the date of the application by more than 120 days, the Franchise Disclosure Document shall also include the following financial statements prepared in accordance with generally accepted accounting principles:

1. An unaudited interim balance sheet as of a date within 120 days of the date of the application; and

2. An unaudited interim statement of income or operations for the period from the most recent audited financial statements to the date of the interim balance sheet.

C. D. The certifications made by or on behalf of the franchisor in Form A shall extend and apply to all documents and materials filed in connection with the renewal application, including any documents or materials submitted to the commission subsequent to the initial filing that may be required to complete the renewal application.

D. E. In addition to paper copies of the materials required by subsection B of this section, the franchisor may file one copy of the complete franchise renewal application, including a marked and unmarked copy of the Franchise Disclosure Document, on a CD-ROM in PDF format, subject to the following conditions:

1. The transmittal letter submitting the application must contain a representation that all of the information contained in the electronic file is identical to the paper documents;

2. The electronic version of the Franchise Disclosure Document must be text searchable; and

3. If the commission's review of the application results in any revision to the documents, the franchisor must submit a revised CD-ROM containing a marked and unmarked final copy of the Franchise Disclosure Document, and final copies of all other application documents. The revised CD-ROM must be accompanied by a transmittal letter as described in subdivision 1 of this subsection.

E. F. An example of Form A is printed at the end of this chapter.

21VAC5-110-85. Disclosure of confidential information.

A. This section governs the disclosure by the commission of information or documents obtained or prepared by any member, subordinate or employee of the commission in the course of any examination or investigation conducted pursuant to the provisions of the Retail Franchising Act (§ 13.1-557 et seq. of the Code of Virginia). It is designed to implement the provisions of § 13.1-567 that permit disclosure of information to governmental and quasi-governmental entities approved by rule of the commission.

B. The Director of the Division of Securities and Retail Franchising or his designee is hereby authorized to disclose information to the entities enumerated in subsections D, E and F of this section. Disclosure shall be made only for the purpose of aiding in the detection or prevention of possible violations of law or to further administrative, legislative or judicial action resulting from possible violations of law. As a condition precedent to disclosure a writing shall be obtained from the receiving entity undertaking that it will exercise reasonable measures to preserve the confidential nature of the information.

C. Disclosure may be made only under the following circumstances:

1. In response to an entity's request for information relating to a specific subject or person.

2. By disseminating to an entity information which may indicate a possible violation of law within the administrative, regulatory or enforcement responsibility of that entity.

3. To participate in a centralized program or system designed to collect and maintain information pertaining to possible violations of securities, investment advisory, retail franchising or related laws.

4. To the extent necessary for participation in coordinated examinations or investigations.

D. The following are approved governmental entities (including any agencies, bureaus, commissions, divisions or successors thereof) of the United States:

1. Board of Governors of the Federal Reserve System or any Federal Reserve Bank.

2. Commodity Futures Trading Commission.

3. Congress of the United States, including either House, or any committee or subcommittee thereof.

4. Department of Defense.

5. Department of Housing and Urban Development.

6. Department of Justice.

7. Department of Treasury.

8. Federal Deposit Insurance Corporation.

9. Office of Thrift Supervision.

10. Federal Trade Commission.

11. Postal Service.

12. Securities and Exchange Commission.

13. Comptroller of the Currency.

14. Federal Bureau of Investigation.

15. Any other federal agency or instrumentality which demonstrates a need for access to confidential information.

E. The following are approved nonfederal governmental entities:

1. The securities or retail franchising regulatory entity of any state, territory or possession of the United States, the District of Columbia, and the Commonwealth of Puerto Rico, state legislative bodies and state and local law-enforcement entities involved in the detection, investigation or prosecution of violations of law.

2. The securities or retail franchising regulatory entity of any foreign country, whether such entity is on a national, provincial, regional, state or local level, and law-enforcement entities within such countries.

F. The following are approved quasi-governmental entities:

1. American Stock Exchange.

2. Chicago Board Options Exchange.

3. Midwest Stock Exchange.

4. Municipal Securities Rulemaking Board.

5. National Association of Attorneys General.

6. National Association of Securities Dealers, Inc. NASDAQ Stock Market, Inc.

7. New York Stock Exchange.

8. North American Securities Administrators Association, Inc.

9. Pacific Stock Exchange.

10. Philadelphia Stock Exchange.

11. Securities Investor Protection Corporation.

12. National White Collar Crime Center.

13. National Association of Securities Dealers Regulation, Inc. Financial Industry Regulatory Authority, Inc.

14. Any other quasi-governmental entity which demonstrates a need for access to confidential information.

VA.R. Doc. No. R10-2307; Filed March 24, 2010, 10:03 a.m.