2013 South Dakota Codified Laws
Title 37 - TRADE REGULATION
Chapter 05B - Franchise Investment
§ 37-5B-1 Definitions.

37-5B-1. Definitions. Terms used in this chapter, unless the context otherwise requires, mean:

(1) "Action," any complaint, cross claim, counterclaim, and third-party complaint in a judicial action or proceeding, and their equivalent in an administrative action or arbitration;

(2) "Affiliate," any entity controlled by, controlling, or under common control with another entity;

(3) "Confidentiality clause," any contract, order, or settlement provision that directly or indirectly restricts a current or former franchisee from discussing the franchisee's personal experience as a franchisee in the franchisor's system with any prospective franchisee. The term does not include any clause that protects franchisor's trademarks or other proprietary information;

(4) "Director," the director of the Division of Securities;

(5) "Disclosure document," the Federal Trade Commission franchise disclosure document as set forth pursuant to 16 C.F.R. Part 436, as of January 1, 2008;

(6) "Disclose, state, describe, and list," to present all material facts accurately, clearly, concisely, and legibly in plain English;

(7) "Filing, filed," the receipt pursuant to this chapter of a record by the director;

(8) "Financial performance representation," any representation, including any oral, written, or visual representation, to a prospective franchisee, including a representation in the general media, that states, expressly or by implication, a specific level or range of actual or potential sales, income, gross profits, or net profits. The term includes any chart, table, or mathematical calculation that shows possible results based on a combination of variables;

(9) "Fiscal year," the franchisor's fiscal year;

(10) "Fractional franchise," any franchise relationship that satisfies the following criteria when the relationship is created:

(a) The franchisee, or any of the franchisee's current directors or officers, or any current directors or officers of a parent or affiliate, has more than two years of experience in the same type of business; and

(b) The parties have a reasonable basis to anticipate that the sales arising from the relationship will not exceed twenty percent of the franchisee's total dollar volume in sales during the first year of operation;

(11) "Franchise," any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that:

(a) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor's trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor's trademark;

(b) The franchisor will exert or has authority to exert a significant degree of control over the franchisee's method of operation, or provide significant assistance in the franchisee's method of operation; and

(c) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate;

(12) "Franchisee," any person who is granted a franchise;

(13) "Franchise seller," any person that offers for sale, sells, or arranges for the sale of a franchise. The term includes the franchisor and the franchisor's employees, representatives, agents, subfranchisors, and third-party brokers who are involved in franchise sales activities. The term does not include existing franchisees who sell only their own outlet and who are otherwise not engaged in franchise sales on behalf of the franchisor;

(14) "Franchisor," any person who grants a franchise and participates in the franchise relationship. Unless otherwise stated, the term includes subfranchisors. For purposes of this subdivision, a subfranchisor is any person who functions as a franchisor by engaging in both pre-sale activities and post-sale performance;

(15) "Leased department," any arrangement whereby a retailer licenses or otherwise permits a seller to conduct business from the retailer's location where the seller purchases no goods, services, or commodities directly or indirectly from the retailer, a person the retailer requires the seller to do business with, or a retailer-affiliate if the retailer advises the seller to do business with the affiliate;

(16) "Offer," any attempt to dispose of, and any solicitation of an offer to buy, a franchise or interest in a franchise for value by purchase, license, or otherwise. The term does not include an offer to extend or renew an existing franchise if there is no interruption in the franchisee's operation of the business, unless the terms and conditions of the extension or renewal differ materially from the original agreement. The term also does not include an offer of a franchise by an existing franchisee if the franchisor has had no significant involvement with the prospective franchisee. A franchisor's prior dealing with a prospective franchisee alone is not deemed to be significant involvement;

(17) "Order," any consent, authorization, approval, prohibition or requirement, or other order applicable to a specific case, issued by the director;

(18) "Notice filing application," the form adopted by the director and used to make notice filings of franchises;

(19) "Parent," an entity that controls another entity directly, or indirectly through one or more subsidiaries;

(20) "Person," any individual, group, association, limited or general partnership, corporation, limited liability company, or any other entity;

(21) "Plain English," the organization of information and language usage understandable by a person unfamiliar with the franchise business. The term incorporates short sentences; definite, concrete, everyday language; active voice; and tabular presentation of information, whenever possible. The term avoids legal jargon, highly technical business terms, and multiple negatives;

(22) "Predecessor," any person from whom the franchisor acquired, directly or indirectly, the major portion of the franchisor's assets;

(23) "Principal business address," the street address of a person's home office in the United States. The term does not include a post office box or private mail drop;

(24) "Prospective franchisee," any person (including any agent, representative, or employee) who approaches or is approached by a franchise seller to discuss the possible establishment of a franchise relationship;

(25) "Record," information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form;

(26) "Required payment," any consideration that the franchisee must pay to the franchisor or an affiliate, either by contract or by practical necessity, as a condition of obtaining or commencing operation of the franchise. The term does not include any payment for the purchase of reasonable amounts of inventory at bona fide wholesale prices for resale or lease;

(27) "Rule," any rule promulgated by the director in accordance with chapter 1-26;

(28) "Sale of a franchise," any agreement whereby a person obtains a franchise from a franchise seller for value by purchase, license, or otherwise. The term does not include extending or renewing an existing franchise agreement if there has been no interruption in the franchisee's operation of the business, unless the new agreement contains terms and conditions that differ materially from the original agreement. The term also does not include the transfer of a franchise by an existing franchisee if the franchisor has had no significant involvement with the prospective transferee. A franchisor's approval or disapproval of a transfer alone is not deemed to be significant involvement;

(29) "Signature," a person's affirmative method of authenticating his or her identity. The term includes a person's handwritten signature, as well as a person's use of security codes, passwords, electronic signatures, and similar devices to authenticate his or her identity;

(30) "Trademark," any trademark, service mark, name, logo, and other commercial symbol;

(31) "Willfully," if applied to the intent with which an act is done or omitted, implies simply a purpose or willingness to commit the act, or make the omission referred to. The term does not require any intent to violate law, or to injure another, or to acquire any advantage;

(32) "Written or in writing," any document or information in printed form or in any form capable of being preserved in tangible form and read. The term includes: type-set, word processed, or handwritten document; information on computer disk or CD-ROM; information sent via email; or information posted on the internet. The term does not include mere oral statements.
Source: SL 2008, ch 203, § 1.