(a) It is unlawful for any person to sell a franchise in this State unless such person has presented to the prospective franchisee or the franchisee’s representative, at least seven days prior to the sale of the franchise, an offering circular containing the following information:

Terms Used In Hawaii Revised Statutes 482E-3

  • Amendment: A proposal to alter the text of a pending bill or other measure by striking out some of it, by inserting new language, or both. Before an amendment becomes part of the measure, thelegislature must agree to it.
  • Contract: A legal written agreement that becomes binding when signed.
  • Conviction: A judgement of guilt against a criminal defendant.
  • Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
  • Damages: Money paid by defendants to successful plaintiffs in civil cases to compensate the plaintiffs for their injuries.
  • Director: means the director of commerce and consumer affairs. See Hawaii Revised Statutes 482E-2
  • Embezzlement: In most states, embezzlement is defined as theft/larceny of assets (money or property) by a person in a position of trust or responsibility over those assets. Embezzlement typically occurs in the employment and corporate settings. Source: OCC
  • Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
  • Franchise: means an oral or written contract or agreement, either expressed or implied, in which a person grants to another person, a license to use a trade name, service mark, trademark, logotype or related characteristic in which there is a community interest in the business of offering, selling, or distributing goods or services at wholesale or retail, leasing, or otherwise, and in which the franchisee is required to pay, directly or indirectly, a franchise fee. See Hawaii Revised Statutes 482E-2
  • Franchise fee: means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business or to continue a business under a franchise agreement, including, but not limited to, the payment either in lump sum or by installments of an initial capital investment fee, any fee or charge based upon the amount of goods or products purchased by the franchisee from the franchisor or subfranchisor, any fee or charges based upon a percentage of gross or net sales whether or not referred to as royalty fees, any payment for goods or services, or any training fees or training school fees or charges; however, the following shall not be considered payment of a franchise fee:

    (1) the purchase or agreement to purchase goods at a bona fide wholesale price;

    (2) the purchase or agreement to purchase goods by consignment; if, and only if the proceeds remitted by the franchisee from any such sale reflect only the bona fide wholesale price of such goods;

    (3) a bona fide loan to the franchisee from the franchisor;

    (4) the purchase or agreement to purchase goods at a bona fide retail price subject to a bona fide commission or compensation plan that in substance reflects only a bona fide wholesale transaction;

    (5) the purchase or agreement to purchase supplies or fixtures necessary to enter into the business or to continue the business under the franchise agreement at their fair market value;

    (6) the purchase or lease or agreement to purchase or lease real property necessary to enter into the business or to continue the business under the franchise agreement at the fair market value. See Hawaii Revised Statutes 482E-2

  • Franchisee: means a person to whom a franchise is offered or granted. See Hawaii Revised Statutes 482E-2
  • Franchisor: means a person who grants a franchise to another person. See Hawaii Revised Statutes 482E-2
  • Fraud: Intentional deception resulting in injury to another.
  • Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
  • Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
  • Person: means a natural person, corporation, partnership, trust, or other entity and in the case of an entity, it includes any other entity which has a majority interest in such an entity or effectively controls such other entity as well as the individual officers, directors, and other persons in act of control of the activities of each such entity. See Hawaii Revised Statutes 482E-2
  • Service of process: The service of writs or summonses to the appropriate party.
  • Subfranchisor: means a person to whom an area franchise is granted. See Hawaii Revised Statutes 482E-2
(1) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees;
(2) The franchisor’s principal business address and the name and address of the franchisor’s agent in the State authorized to receive service of process;
(3) The business form of the franchisor whether corporate, partnership, or otherwise;
(4) Such other information concerning the identity and business experience of persons affiliated with the franchisor including franchise brokers and selling agents as the director may by rule prescribe;
(5) A statement whether any person identified in the offering circular, within ten years preceding the date of the offering circular:

(A) Has been found guilty of a felony or held liable in a civil action by final judgment if the civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property; or
(B) Is subject to any currently effective order of the Securities and Exchange Commission or the securities administrator of any state denying registration to or revoking or suspending the registration of such person as a securities broker or dealer or investment adviser or is subject to any currently effective order of any national security association or national securities exchange (as defined in the Securities Exchange Act of 1934) suspending or expelling such person from membership in such association or exchange; or
(C) Is subject to any currently effective order or ruling of the Federal Trade Commission or is subject to any currently effective order relating to the business activity as a result of an action brought by any public agency or department.

Such statement shall set forth the court, the date of conviction or judgment, any penalty imposed or damages assessed, or the date, nature, and issue of such order;

(6) A statement of when, where, and how long the franchisor has:

(A) Conducted a business of the type to be operated by the franchisees;
(B) Has granted franchises for such business; and
(C) Has granted franchises in other lines of business;
(7) A recent financial statement of the franchisor, together with a statement of any material changes in the financial condition of the franchisor from the date of the financial statement. The director may prescribe:

(A) The form and content of the financial statements required under this chapter;
(B) The circumstances under which consolidated financial statements may be filed; and
(C) The circumstances under which financial statements shall be audited by independent, certified public accountants;
(8) A copy of the typical franchise contract or agreement proposed for use in this State;
(9) A statement of the franchise fee charged, the proposed application of the proceeds of the fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases;
(10) A statement describing a payment of fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor including royalties and payments or fees that the franchisor collects in whole or in part on behalf of a third party or parties;
(11) A statement of the conditions under which the franchise agreement may be terminated or renewed or renewal refused, or repurchased at the option of the franchisor;
(12) A statement of the conditions under which the franchise may be sold, transferred, or assigned;
(13) A statement of the conditions imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee or subfranchisor is required to purchase services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business from the franchisor or the franchisor’s designee;
(14) A statement of any restriction or condition imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee is limited or required in the goods and services offered by the franchisee;
(15) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or the franchisor’s agent or affiliate;
(16) A statement of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee in whole or in part;
(17) A copy of any financial statement prepared for presentation to prospective franchisees or other persons together with a statement setting forth the basis for such statements;
(18) A statement of the number of franchise businesses in each of the following categories that within the three-year period preceding the date of the offering circular have:

(A) Been canceled or terminated by either the franchisor or franchisee;
(B) Not been renewed by either the franchisor or franchisee;
(C) Been reacquired through purchase by the franchisor;
(D) Been otherwise reacquired by the franchisor; and
(E) Been transferred or sold by the franchisee to persons other than a corporation or other business entity controlled by the transferring or selling franchisee;
(19) A statement describing the training program, supervision, and assistance the franchisor has and will provide the franchisee;
(20) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory;
(21) A statement of any compensation or other benefit given or promised to a public figure arising, in whole or in part, from:

(A) The use of the public figure in the name or symbol of the franchise; or
(B) The endorsement or recommendation of the franchise by the public figure in advertisements;
(22) Such other information as the director may reasonably require;
(23) Such other information as the franchisor may wish to present;
(24) When the person selling the franchise is a subfranchisor, the offering circular shall also include the same information concerning the subfranchisor as is required from the franchisor pursuant to this subsection; and
(25) List of names and addresses of all franchisees of the franchisor whose franchise businesses are situated in this State.
(b) If any material change occurs in the information contained in the offering circular, the offering circular shall be amended by the franchisor or subfranchisor before further sales of the franchise are made in this State and the amended offering circular shall be presented to a prospective franchisee at least seven days before a sale of a franchise is made to the prospective franchisee. The director may define by rule material changes which require amendment of an offering circular.
(c) There shall be filed with the director a copy of the offering circular required under subsection (a) or the amended offering circular required under subsection (b) at least seven days prior to the sale of a franchise.
(d) Every filing under this section shall expire three months after the end of each franchisor’s fiscal year. Applications for renewals shall be made not more than sixty days before the expiration date. An application for renewal shall be accompanied by the most recently amended offering circular required under subsection (b). Any applicant for renewal of a franchise filing who submits the renewal application after the expiration date shall be required to reapply as a new franchisor.
(e) In lieu of an offering circular meeting the requirements set forth in this section, franchises may be sold in this State by means of an offering circular or disclosure statement required by a federal or government agency of another state, or an offering circular or disclosure statement meeting the requirements approved by an association of state regulatory agencies; provided that the director determines that such offering circular or disclosure statement substantially meets the disclosure requirements set forth in this section.

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