Franchise Rules and Regulations | Franchises in Virginia

Step 1 is to develop an FDD in substantial compliance with federal law.  The FDD is required to be provided to prospective buyers in every state. We suggest working closely with an attorney with specialized knowledge in franchise law as you develop your system and plan to franchise.  The process does not occur overnight and you should expect 3-6 months of proper planning and execution.   

Once you are ready to offer franchises through a valid FDD, the next step is to register in Virginia.  This requires registration.  Virginia currently allows submissions of initial and renewal applications by mail and online through NASAA's Electronic Filing Depository ("NEFD"). Mailed applications must include a complete print copy, a cd-rom with PDF copy, and a cover letter containing a representation that all of the information contained in the electronic file is identical to the paper documents. If the audited financials included in the FDD precedes the application by more than 120 days, the franchisor must also include an unaudited balance sheet/statement of income or operations. 

State regulators will review the content of the FDD and application. If regulators observe missing content in the FDD or have questions about disclosures, they submit a comment letter and ask that changes be made.  The FDD is a large document. Franchisors highlight the changes by providing a redline copy of all changes.  

Regulators may impose certain Virginia specific requirements.  For instance, if the companies financial stability is questionable state regulators will impose certain requirements to safeguard a franchise buyers investment until the franchisor has completed their obligations. This type of requirement is known as a franchise fee deferral.  

The registration process is completed when the regulator declares the registration effective. This occurs after the franchisor has addressed all comments to the satisfaction of the State Corporation Commission. The application is accepted and the FDD is assigned a state effective date (the "Effective Date"). The FDD will have one issuance date (the "Issuance Date"), but will have different state Effective Dates.

After the registration is Effective, the FDD can be disclosed to prospective franchisees in Virginia.  There is a 14-day waiting period required under federal and state franchise law where the franchise agreement cannot be signed and funds cannot be paid to the franchisor.   After the waiting period is observed, a prospective franchisees can sign a franchise agreement to begin operation under the franchise. Calculation of the waiting period does not include the day the FDD is disclosed or the day the franchise agreement is signed. The franchise agreement is the contract between franchisor and franchisee establishing each party's rights and obligations in operating a franchise. Franchisees should review the FDD during this period.  

Virginia franchise laws provide for registration one year at a time.  Once made effective by state regulators, the registration expires at midnight on the anniversary of the effective date. There are annual renewal requirements for a franchisor to follow in order to continue offering franchises. The Virginia franchise registration renewal application and renewal fee must be submitted prior to expiration if the franchisor wants to continue to offer franchises in Virginia. There may be a period of time between expiration and renewal where a franchisor cannot offer or sale franchises. 

Virginia franchise law requires franchisors to submit amendment applications in the event of any material change in the business. These post-effective updates are completed through an amendment to the franchise application.  Like a renewal, an amendment can result in a brief "black-out" period and there is a fee associated.  To avoid prolonging this black out period, Virginia permits franchisors to continue operations once they file the amendment if the include certain assurances with their application.  

Federal law requires the FDD to be updated within 120 days of the fiscal year end.  Ideally, the FDD renewal and state registration will closely track. It is best for the periods to track because federal law prevents closing on an "expired" FDD and state franchise law requires a registration amendment on any material change, which may be included in the new FDD. Updating both allows franchisors to best maintain compliance with the form and substance of the law. 

The offer or sale of a franchise is regulated on the national level by federal law.  The FDD is the legal document used to offer franchises to prospective buyers who become franchisees after signing a franchise agreement.  Franchisors can offer franchises on a state-by-state basis.  Our partners provide a 10,000 foot overview of the legal requirements for franchising in all 50 states.  

Interested in learning how to grow your business through franchising?  Follow these 8 steps to franchise a business. The first step is to evaluate your business to determine if it is scalable as a franchised business. Business and legal work together. As a Virginia franchisor - the FDD has to be registered and approved prior to offering and selling franchises.  

Building a successful business is tough.  Franchises can serve as an excellent "business in a box" - eliminating some of the pain points and enable more entrepreneurs to jumpstart success. Our franchise law partners provides their take on the top 5 benefits to buying a franchise business. Working with an attorney is essential for FDD review and negotiation. 

Thinking about franchising? With resources available online, you can start to gain an understanding of the legal requirements on your own.  Follow the link to see where you can start with 5 legal resources for new franchisors. Circle back and drop us a line when you're ready.  

Are you a potential buyer of a franchised business? Chances are, the sales representative wants you to buy in as soon as possible. Don't jump in without researching the franchisor. Because federal and state laws regulate what franchisors must disclose, there are many ways to conduct diligence in evaluating a franchisor.  Our partners recommend these top 5 resources for researching a franchise business.  

Considering a franchise opportunity in Virginia or another state?  You need to understand the rights and obligations established in the franchise agreement. Franchise agreements are often one-sided to protect the franchisor at all costs.  Lawyers review franchise agreements, advise, and try to balance the power through negotiation.  Learn more about negotiating franchise agreements in Virginia and nationwide.