GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1989

H	1 

HOUSE BILL 1226

Short Title:  Franchise Investment Program.	(Public)
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Sponsors: Representatives Hardaway; Barnhill, Blue, Burke, Cunningham, Edwards, Fitch, Gist, H. Hunter, Jeralds, Kennedy, Locks, Michaux, Mills, and S. Thompson.
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Referred to:  Commerce.
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April 12, 1989

A BILL TO BE ENTITLED
AN ACT TO ESTABLISH THE FRANCHISE INVESTMENT PROGRAM.
The General Assembly of North Carolina enacts:
Section 1.  Article 10 of Chapter 143B of the General Statutes is amended by adding a new Part to read:
“Part 14.
"Franchise Investment Program.
"§ 143B-472.35.  Definitions.
Unless the context requires otherwise, as used in this Part:
(1)	‘Enterprise' means a business entity, including a sole proprietorship, a partnership, a limited partnership, a corporation, or a joint venture proposing to carry on a business within the State.
(2)	‘Equity participation financing' means any financial assistance provided under this Part including investment or guaranty of investment in an enterprise.
(3)	‘Franchise' means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
a.	A franchise or distributorship grants the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor or a distributor;
b.	The operation of the franchisee's and distributee's business pursuant to a plan or system is substantially associated with the franchisor's or distributor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or distributor or their affiliate; and
c.	The franchisee is required to pay directly or indirectly, a franchise fee in excess of one hundred dollars ($100.00).
(4)	‘Program' means the Franchise Investment Program.
(5)	‘Qualified security' means:
a.	Any note, bond, debenture, or other evidence of indebtedness;
b.	Any stock or other form of equity participation;
c.	Any certificate of interest or participation in a profit sharing agreement;
d.	Any investment contract;
e.	Any certificate of deposit for a security;
f.	Any certificate of interest of participation in a patent or patent application or in royalty or other payments under a patent or patent application; or
g.	Any interest or instrument commonly known as ‘security' or any certificate for, receipt for, guarantee of, or option, warrant, or right to subscribe to or purchase any qualified security.
"§ 143B-472.36.  Legislative findings.
The General Assembly finds that:
(1)	Franchises have proven to be a fast growing and reliable form of successful business expansion and successful new business creation;
(2)	Franchises play a major role in the economy of North Carolina and have been a continuing source of increasing tax revenues and job opportunities;
(3)	The growth of franchises should be encouraged in the State's economy and franchising should be an integral part of the State's economic development effort;
(4)	Socially or economically disadvantaged persons often lack adequate capital and are unable to obtain financing from financial institutions to begin and develop a franchise; and
(5)	It is in the interest of the public welfare to promote the creation and viability of franchises by socially or economically disadvantaged persons.
"§ 143B-472.37.  Purpose.
The purpose of the Franchise Investment Program is to encourage and aid in the creation and development of franchises in the State by socially or economically disadvantaged persons.
"§ 143B-472.38.  Franchise Investment Program.
The Franchise Investment Program is established within the Department of Commerce.  The Small Business Development Division, Department of Commerce, shall administer this Program.
"§ 143B-472.39.  Duties of the Division.
(a)	For the purposes of administering this Part, the Small Business Development Division may:
(1)	Provide equity participation financing for the establishment and development of franchises by socially or economically disadvantaged persons in the State;
(2)	Buy, hold, and sell qualified securities;
(3)	Prepare, publish, and distribute, with or without charge as the Division may determine, technical studies, reports, and other materials it considers appropriate; and
(4)	Provide and pay for any advisory services and technical assistance necessary or desirable to carry out the purposes of this Part.
(b)	The title of any securities shall be held in the name of the State, and the State Treasurer shall be the custodian of the securities.  Any transactions of purchase or sale shall be handled through the Department of State Treasurer.
"§ 143B-472.40.  Franchise Investment Revolving Loan Fund.
(a)	The Franchise Investment Revolving Loan Fund is created.  Moneys appropriated by the State and other moneys made available to the Fund through federal programs or private contributions shall be deposited with the State Treasurer.  Any investment earnings and interest shall be paid to the Fund.  The Fund shall be administered by the Office of State Budget and Management.  This Fund shall be a nonreverting, revolving loan fund.
(b)	The Fund shall be self-sustaining and shall achieve investment returns on its portfolio in the form of:
(1)	Royalties from franchises in amounts to be determined by the Small Business Development Division; and
(2)	Interest payments, when a debt security is used.
(c)	The Division shall use the Fund and income from the Fund to:
(1)	Purchase qualified securities issued by a franchise for the purpose of providing equity participation financing;
(2)	Provide guarantees of investments to expand the capital resources of qualified franchises;
(3)	Purchase advisory services and technical assistance consistent with the Program;
(4)	Purchase any securities that may be a lawful investment for a fiduciary of the State; and
(5)	Provide equity participation financing as permitted under this Part.
"§ 143B-472.41.  Application and requirements for financing.
(a)	The enterprise shall apply for equity participation financing, including the purchase of qualified securities issued by a franchise.
(b)	If the applicant is an individual, the applicant shall satisfy the Small Business Development Division that the applicant:
(1)	Is of good moral character;
(2)	Has a reputation for financial responsibility, as determined from creditors, employers, and other individuals who have personal knowledge of the applicant;
(3)	Is a resident of North Carolina or has his principal place of business in North Carolina;
(4)	Is unable to obtain adequate business financing under reasonable terms through normal lending channels because the applicant:
a.	Belongs to a group that historically has been deprived of access to normal economic or financial resources because of race, color, creed, sex, religion, or national origin;
b.	Has an identifiable physical handicap that severely limits the ability of the applicant to obtain financial assistance, but does not limit the applicant's ability to perform the government contract or other activity for which the applicant would be receiving financial assistance; or
c.	Has any other social or economic impediment that is beyond the personal control of the applicant, such as lack of formal education or financial capacity, or geographical or regional economic distress, but does not limit the ability of the applicant to perform the government contract or other activity for which the applicant would be receiving financial assistance.
(c)	If the applicant is other than a sole proprietorship, at least seventy percent (70%) of the enterprise shall be owned by individuals who meet the qualifications for applicants who are individuals under subsection (b) of this section.
(d)	In addition to the qualifications under this section, an applicant for a guarantee of a loan shall have applied for and been denied a loan by a financial institution.
(e)	An applicant shall submit an application that contains a business plan, including:
(1)	A description of the franchisee and its management, product, and market;
(2)	A statement of the amount, immediacy of need, and projected use of the capital required;
(3)	A statement of the potential economic impact of the purchase;
(4)	Information that shows that the applicant meets the applicable qualifications under subsections (a), (b), and (c) of this section; and
(5)	Any other information the Division requires.
(f)	Under this Program, any equity participation financing shall satisfy the following requirements:
(1)	The Division shall not own securities representing more than forty-five percent (45%) of the voting stock of any franchisee or own an interest greater than forty-five percent (45%) in any franchise.
(2)	The amount of the Division's equity participation financing for any franchise shall not exceed one hundred thousand dollars ($100,000) and shall not exceed forty-five percent (45%) of the total initial investment in the franchise.
(3)	The total amount of investment financing disbursed shall not exceed one million dollars ($1,000,000) for any 12-month period.
(4)	The Division shall find that there is a reasonable probability that the State will recover its initial investment and an adequate return on investment, and the State's investment shall be recoverable within five years of the equity participation financing.
(5)	The State's recovery shall be the greater of the current value of the percentage of the investment in the enterprise or the amount of the initial investment in the enterprise.
(6)	The value of the enterprise at the time of recovery shall be the average of three independent appraisals of the value.
(g)	The liability of the State in providing equity participation financing shall be limited to its investments under the Program."
Sec. 2.  This act shall become effective July 1, 1989.