The Franchise Registration States
If you are a successful business owner and thinking about franchising your business, it is critical to recognize that with the benefits of franchised expansion come both federal and state regulation - regulation that is manageable and, actually, helpful if approached correctly. While Federal Law provides an overriding framework regulating the offer and sale of franchises throughout the entire country, fifteen states have enacted their own franchise laws that, supplement and add additional regulations to be followed by franchisors. In Twelve of the states, registration of the franchisors Franchise Disclosure Document (FDD) is required.
States that have Enacted Supplemental Franchise Laws and Require Registration of a Franchise Disclosure Document:
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Minnesota
- New York
- North Dakota
- Oregon
- Rhode Island
- South Dakota
- Virginia
- Washington
- Wisconsin
In these states, in addition to complying with the Federal Franchise Rule, franchisors must file and register their franchise disclosure document (FDD) prior to offering or selling a franchise. Like a stock or security that must be registered with the Securities and Exchange Commission before offering or selling a franchise in these "registration states" your FDD must first be registered with the appointed state regulator. For example in New York, FDD's must be registered with the New York Attorney General. In California FDD's must be registered with the California Department of Corporations. Since New Jersey is not registration state, although FDD's are still required and must be disclosed, they are not registered with a state entity.
States that have Enacted Supplemental Franchise Laws but do not Require Registration of a Franchise Disclosure Document:
- Michigan (only notice)
- Oregon (no filing)
In these states there are supplemental regulations (in addition to the federal regulations that apply throughout the entire United States) that must be followed. Although Michigan and Oregon do not require "registration" of a franchisor's FDD, these state require the filing of a notice with each respective state advising of your proposed offer and sale of franchise.
Always remember that the "state" regulations are a supplement to the Federal Rule and that, at all times prior to offering and selling a franchise you must have a prepared and updated FDD. Your FDD must be disclosed and delivered to your prospective franchisee at least 14 calendar-days before the prospective franchisee (i) signs a binding agreement with you, or (ii) makes any payment to you or any affiliated entity or person. If you are considering a "licensing system" as opposed to a "franchise system", check out "The Unintentional Franchisor: How a License Agreement may Subject you to Franchise regulation". For important information and insight into the new Franchise Rule and the FDD disclosure requirements definitely read attorney Rush Nigut's post on the New Franchise Disclosure Document.
