Texas Franchise Law
Texas is a one time notice filing state for franchisors that qualify for the franchise exemption under the Texas Business Opportunity Act. Texas does not require annual FDD registration, but franchisors generally must file a Business Opportunity Exemption Notice before offering or selling franchises in the state.
The Texas filing is short, but it should not be treated casually. By filing the exemption notice, the franchisor is taking the position that it materially complies with the FTC Franchise Rule and qualifies for exemption from full business opportunity registration.
Texas is often misunderstood because it is not a traditional franchise registration state. The practical issue is exemption compliance. A franchisor that fails to properly qualify for and file the Texas exemption notice may face full business opportunity registration issues, enforcement risk, and avoidable franchise sales problems.
Overview of Texas Franchise Filing Requirements
Texas regulates many business opportunity sales under the Texas Business Opportunity Act. Franchisors commonly avoid full business opportunity registration by filing a one time exemption notice with the Texas Secretary of State and complying in all material respects with the FTC Franchise Rule.
Business Opportunity Law Applies First
Texas does not use the same franchise registration model as states like California or Virginia. Instead, franchise offerings are analyzed against Texas business opportunity law and its franchise exemption.
Franchise Exemption Notice
Most franchisors file Form 2703, the Business Opportunity Exemption Notice, to claim the exemption from full business opportunity registration.
FTC Rule Compliance Is Central
The exemption depends on the franchisor materially complying in Texas with the FTC Franchise Rule’s disclosure requirements and prohibitions.
Texas Compared to Franchise Registration States
Texas is different from full franchise registration states. It does not require annual FDD registration or a state effective date, but it does require franchisors to be thoughtful about the business opportunity exemption and federal disclosure compliance.
Texas Uses a One Time Filing
Texas generally requires a one time exemption notice instead of annual franchise registration. Once filed, the exemption notice does not have a term or expiration date.
The FDD Is Not Filed
Texas does not require franchisors claiming the franchise exemption to file a copy of the FDD with the state. The franchisor must still prepare and provide a compliant FDD under federal law.
No Filing Can Create Risk
Without the exemption notice, the franchisor may be treated as subject to Texas business opportunity registration requirements, including more burdensome filings and potential enforcement issues.
Texas Franchise Filing Fees
The Texas franchise exemption notice filing is inexpensive compared with traditional registration states, but the filing should still be handled carefully because it is tied to the franchisor’s exemption position.
| Filing Type | Texas Filing Fee | Practical Note |
|---|---|---|
| Business Opportunity Exemption Notice | $25 | One time filing used by franchisors claiming the franchise exemption under the Texas Business Opportunity Act. |
| Address update | $0 | If the franchisor changes its principal business address, the franchisor should notify the Texas Secretary of State in writing. There is no fee for an address update. |
| Business opportunity registration | $195 | This applies to sellers that must register as business opportunities rather than qualify for the franchise exemption. |
| Business opportunity update filings | $25 | Registered business opportunity sellers have ongoing update requirements, which most franchisors seek to avoid by properly filing the exemption notice. |
Confirm the Franchise Exemption Applies
Before relying on the Texas exemption, the franchisor should confirm that the offering qualifies as a franchise and that the franchisor can comply in all material respects with the FTC Franchise Rule in Texas.
Prepare Form 2703
The exemption notice identifies the legal name of the franchisor, all names under which the franchisor does or intends to do business, and the principal business address of the franchisor.
File With the Texas Secretary of State
The completed exemption notice and $25 filing fee are submitted to the Texas Secretary of State. The filing may be mailed or delivered in accordance with the form instructions.
Maintain Accurate Address Information
The exemption notice has no expiration date, but the franchisor should notify the Secretary of State in writing if the franchisor’s principal business address changes.
Continue Federal Disclosure Compliance
The Texas filing does not replace FDD delivery, Item 19 controls, sales team training, or the FTC Franchise Rule’s timing and disclosure requirements.
Texas Franchise Exemption Strategy
The Texas exemption should be treated as a legal position, not just an administrative form. Franchisors should make sure the franchise offering and sales process support the exemption before entering Texas.
Trademark and Brand License
The franchise model should include the right to operate under the franchisor’s trademark, trade name, service mark, or other commercial symbol.
Compliant FDD
The franchisor should have a current FDD that complies with the FTC Franchise Rule and accurately describes the franchise offering.
Required Payment and System Rights
The offering should be analyzed under federal franchise law concepts, including required payment, trademark rights, and significant control or assistance.
What Happens If the Texas Exemption Does Not Apply?
If a seller does not qualify for the franchise exemption, Texas business opportunity registration and compliance requirements may apply. That can create a more burdensome regulatory framework than the one time franchise exemption notice.
Business Opportunity Registration
A non exempt business opportunity seller may need to register by filing a disclosure statement and list of salespersons with the Texas Secretary of State.
Bond or Security Issues
If certain representations are made, the seller may need a surety bond, trust account, or irrevocable letter of credit in favor of the state.
Ongoing Update Requirements
Registered business opportunity sellers have update obligations, including updates for material changes and updates to salesperson lists.
Coordinating Texas With the FTC Franchise Rule
Texas exemption filing does not replace federal franchise compliance. In many ways, FTC Rule compliance is the foundation for the Texas exemption.
FDD Delivery Timing
The FDD must be delivered within the timing required by the FTC Franchise Rule before signing a franchise agreement or accepting payment.
Financial Performance Controls
Sales teams should not make financial performance representations unless they are properly supported and included in Item 19.
Current and Accurate Disclosures
The FDD used in Texas should be current, accurate, and consistent with the franchisor’s disclosures used in other states.
Common Texas Franchise Compliance Issues
Texas compliance problems usually occur when franchisors assume that no annual registration means no state level filing issue. The exemption notice is simple, but failing to file or failing to qualify can create avoidable risk.
No Exemption Notice Filed
Failing to file the one time exemption notice can expose the franchisor to Texas business opportunity compliance issues.
Assuming Texas Is a No Filing State
Texas does not require annual franchise registration, but it does generally require a one time exemption filing for franchisors relying on the franchise exemption.
Weak FTC Rule Compliance
The exemption depends on material compliance with federal franchise disclosure requirements and prohibitions.
Failure to Update Address
If the franchisor changes its principal business address, the franchisor should notify the Secretary of State in writing.
Improper Earnings Claims
Financial performance representations must be properly supported and included in Item 19.
Wrong FDD Version
Texas prospects should receive the current FDD that accurately reflects the franchise offering.
Unclear Business Names
Form 2703 requires the legal name and all names under which the franchisor does or intends to do business.
No Compliance Calendar
Even one time filing states should be tracked with FDD updates, sales permissions, address changes, and annual franchise compliance review.
Texas Franchise Filing Support
Waldrop & Colvin helps franchisors prepare Texas Business Opportunity Exemption Notices, evaluate exemption strategy, maintain FTC Franchise Rule compliance, and coordinate Texas filings with broader multistate franchise sales compliance.
Texas is a useful example of why franchise compliance is not limited to annual registration states. A one time filing can still matter if it determines whether the franchisor is exempt from a more burdensome business opportunity law framework.
Texas Franchise Law FAQ
Common questions about Texas franchise filing, the Business Opportunity Exemption Notice, filing fees, renewals, address updates, and FTC Franchise Rule compliance.
Is Texas a franchise registration state?
Texas is best described as a one time notice filing state for franchisors that qualify for the franchise exemption under the Texas Business Opportunity Act. It is not a traditional annual FDD registration state.
What filing does a franchisor make in Texas?
Most franchisors file Form 2703, the Business Opportunity Exemption Notice, with the Texas Secretary of State before offering or selling franchises in Texas.
What is the Texas franchise exemption notice filing fee?
The filing fee for the Texas Business Opportunity Exemption Notice is $25.
Does the Texas exemption notice expire?
No. The Texas exemption notice does not have a term or expiration date. It is generally a one time filing.
Does Texas require annual renewal?
No. Texas does not require annual renewal of the Business Opportunity Exemption Notice. However, a franchisor should notify the Secretary of State in writing if its principal business address changes.
Does Texas require franchisors to file the FDD?
No. Texas does not require franchisors claiming the franchise exemption to file a copy of the FDD with the state. The franchisor must still maintain and deliver a compliant FDD under the FTC Franchise Rule.
What happens if a franchisor does not qualify for the Texas exemption?
If the exemption does not apply, the seller may be subject to Texas business opportunity registration and ongoing compliance requirements.
Does Texas filing replace FTC Franchise Rule compliance?
No. Texas filing does not replace federal franchise disclosure requirements. The franchise exemption depends on material compliance with the FTC Franchise Rule in Texas.
