USA – ILLINOIS Law and Practice Contributed by: Carmen D. Caruso, Bill Whitner and Gage Meyers, Carmen D. Caruso Law Firm
11. Execution Formalities 11.1 Authentication, Notarisation, Witnessing, Etc Illinois does not require a franchise agreement to be notarised, witnessed or otherwise specially authenti - cated to be valid and enforceable between the parties; ordinary contract-execution formalities apply, and the agreement is enforceable once signed by parties with authority to bind their respective entities. Because franchise agreements typically run longer than one year, however, the Illinois Statute of Frauds generally requires the agreement to be in writing and signed by the party against whom enforcement is sought. See 740 ILCS 80/1. Electronic signatures may satisfy this requirement. There is no Illinois franchise-specific registration of the executed agreement itself with the Attorney General. Registration under the IFDA attaches to the franchise offering and disclosure statement, not to each indi - vidual signed agreement. 11.2 Electronic Signatures Electronic signatures are valid and enforceable for Illi - nois franchise agreements. Under the Illinois Uniform Electronic Transactions Act, a signature, contract or record may not be denied legal effect solely because it is electronic, and an electronic signature satisfies any legal requirement that a document be signed. See 815 ILCS 333/7. The federal E-SIGN Act provides similar protections for transactions involving interstate or foreign com - merce. See 15 USC Section 7001 (a). Accordingly, an Illinois franchise agreement executed through an electronic-signature platform generally has the same legal effect as one signed by hand, provided the par - ties agreed to conduct the transaction electronically and the signature can be attributed to the signer. The agreement remains subject to the same questions of authority, authenticity, fraud and enforceability as a paper agreement. 11.3 Stamp Duties Illinois does not impose a stamp duty, document tax or similar transfer tax on the execution of a franchise
are generally included in the franchisor’s taxable income rather than collected through withholding. Payments to a foreign franchisor, however, may be subject to US federal withholding tax. Under Inter - nal Revenue Code (IRC) Sections 861 (a)(4), 881 (a) and 1442, royalties for the use of trade marks, fran - chise rights or other intellectual property in the United States generally constitute US-source income, and the franchisee would withhold 30% of the gross roy - alty payment unless an exemption applies. Technical and other service fees are treated differently from royalties: the source of compensation depends on where the services are performed. Compare IRC Sections 861 (a)(3) and 862 (a)(3). Fees for services performed entirely outside the United States generally constitute foreign-source income and are not subject to withholding under Treasury Regulation Sections 1441 and 1442. Fees for services performed in the United States may be subject to withholding at the statutory 30% rate when paid to a foreign recipient, unless a treaty, asso - ciated income rules or another exemption applies. See IRC Sections 871 (a)(1)(A), 881 (a)(1), 1441 (a), 1442 (a); Treas Reg Section 1.1441-4 (a)(1). If services are performed partly within and partly outside the United States, compensation must be apportioned under the method that most accurately reflects the income’s source. See Treas Reg Section 1.861-4 (b). 10.3 Foreign Currency Controls The United States does not maintain foreign-exchange or capital controls of the kind found in some other jurisdictions, and Illinois franchisees may pay fran - chise fees, royalties and service fees to a domes - tic or foreign franchisor without prior authorisation from a central bank or other governmental authority. Cross-border payments remain subject to ordinary US anti-money-laundering, sanctions and currency- transaction-reporting requirements applicable to the processing banks, but these are compliance and reporting obligations rather than substantive restric - tions on the franchisee’s ability to pay.
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