State of Illinois
91st General Assembly

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 1        AN   ACT   concerning   minority   and  female  franchise
 2    investments, amending named Acts.

 3        Be it enacted by the People of  the  State  of  Illinois,
 4    represented in the General Assembly:

 5        Section  1.  Short  title.   This Act may be cited as the
 6    Minority and Female Franchise Investment Act.

 7        Section 5.  Findings and purpose.  The  General  Assembly
 8    finds that:
 9        (a)  Franchises  have  proven  to  be  a fast growing and
10    reliable form of successful business expansion and successful
11    new business creation.
12        (b)  Franchises play a major role in the economy  of  the
13    State  of  Illinois  and  have  been  a  continuing source of
14    increasing tax revenues and job opportunities.
15        (c)  The growth of franchises should be encouraged in the
16    State's economy and franchising should be an integral part of
17    the State's economic development effort.
18        (d)  Socially or economically disadvantaged persons often
19    lack adequate capital and are unable to obtain financing from
20    financial institutions to begin and develop a franchise.
21        (e)  It is in the interest  of  the  public  welfare  and
22    purpose  to  promote the creation and viability of franchises
23    by socially or economically disadvantaged persons.
24        (f)  Existing State programs intended to assist  socially
25    or   economically   disadvantaged   persons   with   business
26    opportunities  are  inadequate  to  meet the every increasing
27    need for additional assistance and are not focused  upon  the
28    particular problems facing prospective franchisees.
29        (g)  The   Attorney  General,  as  administrator  of  the
30    Franchise Disclosure Act of 1987, is particularly well suited
31    to administer this additional facet of franchise  development
                            -2-                LRB9103643MWgc
 1    and regulation.

 2        Section 10.  Definitions.  As used in this Act:
 3        "Enterprise"   means  any  business  entity  in  Illinois
 4    including, but  not  limited  to,  any  sole  proprietorship,
 5    partnership,  corporation,  joint  venture,  association,  or
 6    cooperative  proposing  to  participate under this Act in the
 7    purchase of a franchise.
 8        "Funding" means loans provided under this Act.
 9        "Franchise" means a contract or  agreement  and  has  the
10    meaning  used in Section 3 of the Franchise Disclosure Act of
11    1987.  Franchise includes only those franchise offerings that
12    are registered or exempt under the Franchise  Disclosure  Act
13    of 1987.
14        "Program" means the funding provided under this Act.
15        "Minority  person"  means  a  person  who is a citizen or
16    lawful permanent resident of the United States and who is:
17             (1)  Black (a person having origins in  any  of  the
18        black racial groups in Africa);
19             (2)  Hispanic  (a  person  of  Spanish or Portuguese
20        culture with origins in Mexico, South or Central America,
21        or the Caribbean Islands, regardless of race);
22             (3)  Asian American (a person having origins in  any
23        of  the original peoples of the Far East, Southeast Asia,
24        the Indian Subcontinent, or the Pacific Islands);
25             (4)  American Indian or  Alaskan  Native  (a  person
26        having  origins  in  any of the original peoples of North
27        America); or
28             (5)  Disabled (a person having a physical or  mental
29        impairment  that  substantially limits one or more of the
30        major life activities of the person or a person having  a
31        record of such impairment).
32        "Female"  means  a  person  who  is  a  citizen or lawful
33    permanent resident of the United States and  who  is  of  the
                            -3-                LRB9103643MWgc
 1    female gender.
 2        "Participant"   means  any  enterprise  applying  to  the
 3    Administrator for funding from the Program.
 4        "Control"  means  the  exclusive  or  ultimate  and  sole
 5    control of the  business,  including,  but  not  limited  to,
 6    capital investment and all other financial matters, property,
 7    acquisitions,  contract negotiations, legal matters, officer,
 8    director, and employee selection  and  comprehensive  hiring,
 9    daily   operating   responsibilities,  cost-control  matters,
10    income and  dividend  matters,  financial  transactions,  and
11    rights  of  other  shareholders  or  joint partners.  Control
12    shall be real, substantial, and continuing,  not  pro  forma.
13    Control  shall  include  the  power  to  direct  or cause the
14    direction of the management and policies of the business  and
15    to  make the day-to-day as well as major decisions in matters
16    of policy, management,  and  operations.   Control  shall  be
17    exemplified   by   possessing  the  requisite  knowledge  and
18    expertise to run the particular business, and  control  shall
19    not include simple majority or absentee ownership.
20        "Administrator" means the Illinois Attorney General.
21        "Loan"  means acceptance of any note, bond, debenture, or
22    evidence of indebtedness, whether unsecured or secured  by  a
23    mortgage,  pledge,  loan  guarantee,  deed of trust, or other
24    lien on any property, or any  certificate  of,  receipt  for,
25    participation  in,  or  an  option to any of the foregoing or
26    other form approved by the Administrator.  A loan shall  bear
27    an  interest  rate,  with  terms of repayment, secured by any
28    collateral,  with  other  terms  and  conditions,  that   the
29    Administrator shall deem necessary or appropriate.
30        "Participating  lender"  means  any  trust company, bank,
31    savings bank, credit union, merchant bank,  investment  bank,
32    broker,  investment  trust,  pension  fund, building and loan
33    association, savings and loan association, insurance company,
34    venture capital company or other institution.
                            -4-                LRB9103643MWgc
 1        Section 15.  Powers and duties.   The  Administrator  has
 2    the power to:
 3        (a)  Provide  loans for the establishment and development
 4    of franchises by minority and female persons qualifying under
 5    this Act.
 6        (b)  Enter into agreements, accept funds or  grants,  and
 7    cooperate  with agencies of the federal and State government,
 8    local   units   of   government,    universities,    research
 9    foundations,  regional economic development corporations, and
10    other organizations for the purposes  of  carrying  out  this
11    Act.
12        (c)  Enter   into   contracts   and   letter   of  credit
13    agreements, provide funds  for  participation  agreements  or
14    make  any  other  agreements  or contracts, or invest or loan
15    funds to any participating lender, private  investor,  public
16    or  private development corporation or other entity necessary
17    or  desirable  to  further  the  purpose  of  this  Act.  Any
18    agreement or contract may include, without limitation,  terms
19    and   provisions   including,   but   not  limited  to,  loan
20    documentation, review and approval  procedures,  organization
21    and  servicing  rights,  contribution  requirements,  default
22    conditions, and other related activities.
23        (d)  Fix,  determine,  charge,  and collect any premiums,
24    fees,  charges,  costs  and  expenses,   including,   without
25    limitation,  any  application  fees, commitment fees, program
26    fees, financing charges, or publication  fees  in  connection
27    with its activities under this Act.
28        (e)  Establish  application,  notification, contract, and
29    other  forms,  procedures,  rules   or   regulations   deemed
30    necessary and appropriate.
31        (f)  Consent,  subject  to the provisions of any contract
32    with another  person,  whenever  it  deems  it  necessary  or
33    desirable  in the fulfillment of the purposes of this Act, to
34    the  modification  or  restructuring  of  any  capital   loan
                            -5-                LRB9103643MWgc
 1    agreement to which the Administrator is a party.
 2        (g)  Take  whatever  actions are necessary or appropriate
 3    to protect the State's interest in the event  of  bankruptcy,
 4    default,  foreclosure,  or  noncompliance  with the terms and
 5    conditions of financial assistance  provided under this  Act,
 6    including  the  power  to sell, dispose, lease, or rent, upon
 7    terms and conditions determined by the  Administrator  to  be
 8    appropriate, real or personal property that the Administrator
 9    may receive as a result thereof.
10        (h)  Consult  with State and local governmental officials
11    in  order  to  ensure  the  most  effective  use  of  program
12    resources  without  duplication  or  overlap  with   existing
13    business opportunity expansion programs.
14        (i)  Exercise other powers necessary or incidental to the
15    foregoing powers.

16        Section     20.  Qualifying    participant.     A    sole
17    proprietorship applying to the Administrator for funding from
18    the Program shall be 100% owned and controlled by a  minority
19    or female.  If other than a sole proprietorship, at least 70%
20    of  the  enterprise applying to the Administrator for funding
21    from the Program shall be owned and controlled by one or more
22    minorities or females, or both. If funding is awarded  to  an
23    enterprise, it shall continue to be 100% owned and controlled
24    by  a  minority or female during the course of the loan if it
25    is a sole proprietorship; if the enterprise receiving funding
26    is other than a sole proprietorship, it shall continue to  be
27    70%  owned  and  controlled  by  one  or  more  minorities or
28    females.

29        Section 25.  Application and requirements for funding.
30        (a)  Under the Program,  the  Administrator  may  provide
31    loans  to  qualifying  participants only after the enterprise
32    has submitted an application that contains a  business  plan,
                            -6-                LRB9103643MWgc
 1    including:
 2             (1)  A   description   of  the  franchisor  and  its
 3        management, product and market.
 4             (2)  A statement of the amount, urgency of need, and
 5        projected use of the  capital required.
 6             (3)  A statement of the potential economic impact of
 7        the purchase.
 8             (4)  Information that relates to  the  participant's
 9        qualifications to participate in this Program.
10             (5)  A  statement of the business experience of each
11        individual person owning any interest in  the  enterprise
12        for  the  10 years immediately preceding the application,
13        any felony conviction or any misdemeanor  conviction  for
14        which  fraud was an essential element for each individual
15        person owning any interest in the enterprise, any charges
16        or  complaints  lodged  against  each  individual  person
17        owning any interest in the enterprise for which fraud was
18        an essential  element  and  that  resulted  in  civil  or
19        criminal  litigation,  and  any failure of any individual
20        person owning any interest in the enterprise  to  satisfy
21        an  enforceable judgment entered against him or her based
22        upon fraud.   Since  the  information  required  by  this
23        paragraph  may  be  confidential  or  contain proprietary
24        information, this information shall not be  available  to
25        the  general public and shall be used only for the lawful
26        purposes contained in this Act.
27             (6)  A description of other financing to be used for
28        the proposed purchase of the franchise by the enterprise.
29        Other financing may be in the form of  any  loan,  equity
30        position,  convertible preferred stock, letter of credit,
31        guarantee, bond purchase or any other  form  approved  by
32        the Administrator.
33             (7)  Any   other   information   the   Administrator
34        requires.
                            -7-                LRB9103643MWgc
 1        (b)  Under  the  Program,  any  funding shall satisfy the
 2    following requirements:
 3             (1)  An enterprise and the persons comprising it may
 4        only receive funding under the Program for  the  purchase
 5        of one franchise.
 6             (2)  The  amount  of the Administrator's funding may
 7        not exceed $100,000 for any franchise and may not  exceed
 8        45% of the total initial investment in the franchise.
 9             (3)  The  Administrator  shall  find that there is a
10        reasonable  probability  that  the   Administrator   will
11        recover  its initial investment and an adequate return on
12        investment,  and  the  investment  shall  be  recoverable
13        within 7 years of the funding.
14             (4)  The  recovery  shall  be  the  greater  of  the
15        current value of the percentage of  the  funding  in  the
16        enterprise or the amount of the initial investment in the
17        enterprise.
18             (5)  Funding   shall   be   provided   to  qualified
19        participants.
20        (c)  The liability of the Administrator and the State  of
21    Illinois  in  providing  funding  shall  be  limited  to  its
22    investments under the Program.

23        Section 30.  Illinois Franchise Trust Fund.
24        (a)  There  is created the Illinois Franchise Trust Fund,
25    referred to as the "Franchise Fund" with the State  Treasurer
26    as  ex  officio custodian.  The purpose of the Franchise Fund
27    is to make loans  in  Illinois  to  qualifying  minority  and
28    female persons.
29        (b)  There  shall  be  deposited  into the Franchise Fund
30    amounts, that include but are not limited to:
31             (1)  Money  appropriated  by  the   State   to   the
32        Franchise Fund;
33             (2)  Fees paid under the Franchise Disclosure Act of
                            -8-                LRB9103643MWgc
 1        1987  and  specified  by  Section  40  of  that Act to be
 2        deposited into the Illinois Franchise Trust Fund;
 3             (3)  All receipts,  including  dividends,  principal
 4        and  interest  payments, royalties or other return on any
 5        loan or investment, from any applicable funding  made  by
 6        the Administrator;
 7             (4)  All  proceeds  of  assets  of  whatever  nature
 8        received  by  the Administrator as a result of default or
 9        delinquency with respect to loan agreements made  by  the
10        Administrator;
11             (5)  Any  appropriations,  grants, or gifts made for
12        the purposes of this Act;
13             (6)  Any   income   received   from   interest    on
14        investments of moneys in the Franchise Fund; and
15             (7)  Any  money  made  available for the purposes of
16        this Act through federal programs, except that the  terms
17        and  conditions of this Act that are inconsistent with or
18        prohibited  by  federal  authorization  under  which  the
19        moneys are available shall not apply with respect to  the
20        expenditure of those moneys.
21        (c)  The  Franchise  Fund  shall  be  self-sustaining and
22    shall achieve investment returns on its portfolio in the form
23    of:
24             (1)  Royalties from enterprises  in  amounts  to  be
25        determined by the Administrator; and
26             (2)  If debt security is used, interest payments.
27        (d)  Moneys  in the Franchise Fund shall be paid upon the
28    order of the Administrator, who shall use the Franchise  Fund
29    and income from the Franchise Fund as follows:
30             (1)  In   the  purchase  of  advisory  services  and
31        technical assistance consistent with the Program;
32             (2)  To  provide  loans  as  permitted   under   the
33        Program; and
34             (3)  To  pay expenses for administrative, legal, and
                            -9-                LRB9103643MWgc
 1        actuarial services relating to the Program.

 2        Section 35.  Hold harmless.  Nothing in this Act shall be
 3    construed as creating  any  rights  of  a  competitor  of  an
 4    approved  borrower  or  any  applicant  whose  application is
 5    denied by the Administrator to challenge any application that
 6    is accepted by the Administrator and  any  funding  or  other
 7    agreement   executed   in   connection   with  that  accepted
 8    application.

 9        Section 40.  False statement.
10        (a)  Any person who knowingly makes or causes  any  false
11    statement  or  report to be made in any application or in any
12    document furnished to the Administrator  commits  a  Class  2
13    felony.
14        (b)  The  Administrator,  with  assistance as he may from
15    time to time request of the State's Attorneys in the  several
16    counties,  shall investigate suspected criminal violations of
17    this Act and shall commence and try  all  prosecutions  under
18    this  Act.    Prosecutions under this Act may be commenced by
19    information or indictment.  With respect to the  commencement
20    and  trial  of  prosecutions instituted by the Administrator,
21    the Administrator shall have all of  the  powers  and  duties
22    vested  by  law  in  the  State's  Attorneys  with respect to
23    criminal  prosecutions  generally.   A  prosecution  for  any
24    offense under this Act must be commenced within 3 years after
25    its commission.  Nothing in this Act limits the power of  the
26    State to punish any person for any conduct that constitutes a
27    crime under any other statute.

28        Section  100.  The State Finance Act is amended by adding
29    Section 5.490 as follows:

30        (30 ILCS 105/5.490 new)
                            -10-               LRB9103643MWgc
 1        Sec. 5.490.  The Illinois Franchise Trust Fund.

 2        Section 105.  The Franchise Disclosure  Act  of  1987  is
 3    amended by changing Section 40 as follows:

 4        (815 ILCS 705/40) (from Ch. 121 1/2, par. 1740)
 5        Sec. 40.  Fees.
 6        (a)  The  Administrator shall charge and collect the fees
 7    fixed by this Section.  Except as otherwise provided in  this
 8    Section,  all  fees  and charges collected under this Section
 9    shall be transmitted to the State Treasurer for deposit  into
10    the  General  Revenue  Fund at least weekly, accompanied by a
11    detailed statement thereof.  Such fees and charges  shall  be
12    refundable at the discretion of the Administrator.
13             (1)  (b)  The  fee for the initial registration of a
14        franchise shall be $650 $500.
15             (2) (c)  The fee for filing  an  amended  disclosure
16        statement  with  a material change shall be $150 shall be
17        $100 if the amendment  pertains  to  a  material  change,
18        otherwise $25.
19             (3)  (d)  The  fee for an interpretive opinion or no
20        action letter shall be $100 $50.
21             (4) (e)  The fee for the registration of a franchise
22        broker shall be $100 with an  annual  a  renewal  fee  of
23        $100.
24             (5)  (f)  The  fee for filing an annual report shall
25        be $350 $100.
26        (b)  The following fees are  to  be  deposited  into  the
27    Illinois  Franchise Trust Fund, a special fund created in the
28    State Treasury.  The moneys held in the fund shall be used by
29    the  Attorney  General  for  expenditures  incurred  in   the
30    administration  of this Act, for the program authorized under
31    the  Minority  and  Female  Franchise  Investment  Act,   for
32    education  purposes  under  this Act, and for other necessary
                            -11-               LRB9103643MWgc
 1    programs related to  franchising.    All  interest  or  other
 2    income earned from the investment of moneys in the fund shall
 3    be deposited into the fund.
 4             (1)  $150   of   every   fee  paid  for  an  initial
 5        registration  shall  be  deposited  into   the   Illinois
 6        Franchise Trust Fund.
 7             (2)  $50 of every fee paid for an amended disclosure
 8        statement  shall be deposited into the Illinois Franchise
 9        Trust Fund.
10             (3)  $50 of  every  fee  paid  for  an  interpretive
11        opinion  or  no action letter shall be deposited into the
12        Illinois Franchise Trust Fund.
13             (4)  $250 of every fee paid  for  an  annual  report
14        shall  be  deposited  into  the  Illinois Franchise Trust
15        Fund.
16    (Source: P.A. 85-551.)

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