Do You Have Questions About Franchising a Business?

Franchise law consists of federal and state laws that govern the offer or sale of a franchise in the United States. On the federal level, the Federal Trade Commission has established Franchise Rules (16 CFR Parts 436 and 437). The Franchise Rules are supplemented by laws enacted in certain states. Additionally, the North American Securities Administrators Association ("NASAA") provides guidance on franchise compliance, works with state regulators, and facilitates the transfer of franchise applications to certain state governments. Check out the Table Below Entitled "Franchising State-by-State" for a current list and brief explanation.   

A Franchisor cannot offer or sale a franchised business in the United States or its territories without first preparing a complete Franchise Disclosure Document ("FDD") in compliance with the law.    

The franchise disclosure document (the "FDD") is a legal document that franchisors are required to prepare, keep updated annually, and provide to prospective buyers interested in operating a franchised business. There are 23 sections of information referred to as Items in the FDD. Each section has specific requirements as enumerated in the Franchise Rule. The FDD is intended to provide information about the franchisor, the franchise system and the agreements that will bind the Franchisor/Franchisee relationship. The goal is to foster informed purchase decisions. The FDD must be provided in every state and territory in the United States. 

Franchise registration states are states that impose a registration requirement on franchisors. In these states, the franchisor must submit an application packet that includes a complete copy of the FDD, along with other materials and pay a filing fee. Most registration states review the FDD and will not allow a franchisor to offer or sale franchises in their state until they are satisfied that the FDD is in substantial compliance with all state and federal franchise laws. This is done through comment letters and subsequent updates to the FDD. Fees are imposed for registration and an annual renewal. 

Franchise filing states include both one-time filing states and annual filing states.  One-time franchise filing states require a franchisor to make a one-time filing or provide notice in order to offer or sale a franchise in their state. Annual franchise filing states require a franchisor to make an annual filing on a state form and pay a filing fee in order to offer franchises in the state.  

Certain states have business opportunity laws but do not have franchise specific laws or registration requirements.  In these business opportunity states, franchisors are exempt from filing or registering if the franchise offering includes the right to use a federally registered trademark.  If the franchisor does not have a federally registered trademark, then the franchisor will likely have to register as a business opportunity in these states. Business opportunity registration requirements may vary by state, but these essentially become franchise registration states if a franchisor lacks a federally registered trademark.  

Pursuant to federal law, a franchisor is required to update the FDD within 120 days of the franchisors fiscal year end. In registration states, the new FDD has to be approved in order to be effective in that state. Additionally, the FDD must be updated any time there is a material change in the franchise business.   

When the FDD is complete and in substantial compliance with the Franchise Rule it will be assigned an Issuance Date. Upon issuance, the franchisor may begin to offer and sale franchises in states that do not impose additional regulations on the offer or sell of franchises.  (See the PDF below).

After the issuance of a valid Franchise Disclosure Document a Franchisor can begin to offer or sale franchises under that document in certain states; however, the Franchisor needs approval before offering under that document in regulating states. A franchisor cannot offer or sale a franchise in a registration or filing state until after the registration or filing is made effective in that state. The requirements for registration or filing vary by state. We recommend filing through the NASAA electronic filing depository whenever possible.   

It Depends. Some approvals take weeks and others take months. Filing online through the NASAA electronic filing depository seems to expedite the process. You can't choose the state regulator, but we work diligently to ensure that our clients gain approval as fast as possible. This is vital for initial applications and for renewals. 

We provide state-by-state approval tracking for all 50 states in a visually friendly and easy to understand manner for your business, franchise sellers, and brokers to utilize. Our system uses a simple green light / red light alert so that you know when you can and cannot offer a franchise in a particular state.  

A Franchise Agreement cannot be be signed until the fifteenth (15th) day after the Franchise Disclosure Document (FDD) is disclosed to a prospect.   You do not count the day that the disclosure document is disclosed (Example:  Disclose January 1, wait 14 days, sign on January 16).  Of course, the FDD cannot be disclosed in franchise registration states or franchise filing states until the FDD is effective in those states.  

The offer or sale of all franchise opportunities are regulated to some degree in franchise registration states and franchise filing states; which include:  California, Connecticut, Florida, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota,  New York, North Dakota, Rhode Island, Texas, Virginia, Utah, Washington and Wisconsin. It is important to trademark your brand for many reasons. One additional hurdle caused by failing to trademark your brand is the inclusion of business opportunity states that essentially become franchise registration states for franchisors without a registered trademark.  These business opportunity states include: Connecticut, Georgia, Louisiana, Maine, North Carolina and South Carolina. We strongly recommend you obtain a trademark for your brand in the early stages of your business. 

We aren't franchise consultants, but we review FDD's every day. We know where to look and what to compare.  We provide the level of support and advice you want. We can analyze any competitors who offer franchises and provide you with the information you need to understand  competitor's models, costs, territory sizes, and growth rates.  

The FDD is the primary legal document used to offer and sale franchises. Franchise law is complex and the damages for noncompliance can be severe. Further, the contracts in the FDD will govern the franchise relationship and the rights and obligations of the parties. The better question is, should a lawyer prepare an FDD? The answer to that question is a resounding YES. 

Every business is different, but many franchisors will negotiate certain financial and legal terms.  Dr. Chester L. Karrass wrote a book entitled: In business as in life, you don’t get what you deserve, you get what you negotiate.  Our experience has found this adage to be true in franchising. 

Every business is different, but many franchisors will negotiate certain financial and legal terms of the franchise agreement.  Dr. Chester L. Karrass wrote a book entitled: In business as in life, you don’t get what you deserve, you get what you negotiate.  Our experience has found this adage to be true in franchising. 

Certain franchise registration states publish FDD's online for the public to view. Don't pay a third-party for these. They are free on franchise registration state databases! 

Try searching here:

Wisconsin: https://www.wdfi.org/apps/FranchiseEFiling/default.aspx

Indiana:  https://securities.sos.in.gov/public-portfolio-search

Minnesota: https://www.cards.commerce.state.mn.us/CARDS

California: https://docqnet.dfpi.ca.gov/search

We are Virginia licensed attorneys in a Virginia franchise law firm, but that does not mean we can only represent Virginia franchisors. Attorneys are permitted to work in their state while serving business interests across the country. In fact, it would be impossible to locate a franchise attorney licensed in all 50-states and franchisors do not want to work with multiple franchise attorneys.  A franchise attorney licensed to practice law in any state can serve your franchise formation needs and file or register your FDD's in any state you wish to do business. We will be in Virginia when we conduct all legal work and will meet with you by phone or video conferencing.  If litigation is involved, we are Virginia litigation attorneys and can work with local counsel in other states as needed.  The key to finding a franchise attorney is ensuring the attorney is well-versed in the nuances of franchise law and registration. We hope our website demonstrates our knowledge of franchise law and registration requirements. 

Dr. Chester L. Karrass wrote a book entitled: In business as in life, you don’t get what you deserve, you get what you negotiate. Our experience has found this adage to be true. Our contract templates are used to conduct over 10B in business each year. We are the law department for your business.  We are laser-focused on providing efficient and effective business legal solutions. If you like personable attorneys that deliver results, we are a good fit.