A basic understanding of franchise law is important for any franchisor, even if you have professional legal representation.
On the federal level, the Federal Trade Commission (FTC) regulates disclosure. Franchisors are required by law to provide prospective franchisees with a franchise disclosure document (FDD) that contains comprehensive, detailed information about the franchise system.
But at the state level, franchise law varies. Most states don’t regulate sales of franchises, but some require either registration or a filed notice.
FDD Registration States
Several states, known as registration states, require franchisors to register the FDD with the government before offering franchises for sale. A state examiner then reviews the FDD, and in some cases, may designate specific changes or additions that must be made. The idea behind registration is to further protect prospective franchisees within the state.
The following states require FDD registration:
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Michigan
- Minnesota
- New York
- North Dakota
- Rhode Island
- Virginia
- Washington
- Wisconsin
FDD Notice Filing States
Several other states do not require registration but do mandate that a franchisor must provide notice to their state government indicating plans to sell franchises within the state. The FDD has to be filed, but no review is required. Consequently, you will not have to address any state-requested changes.
States that require FDD notice filing include:
- Connecticut
- Florida
- Kentucky
- Maine
- Nebraska
- North Carolina
- South Carolina
- South Dakota
- Texas
- Utah
Oregon doesn’t fit into either of these categories, as the state doesn’t require FDD registration or notice filing. However, that state does have franchise laws related to how business opportunities are offered for sale.
Complexities in State-Level Franchise Law
In some states, franchise law is even more complicated.
Rules can differ regarding exactly what information needs to be included on the FDD, for example. Or the state may have implemented laws regulating the relationship between a franchisor and franchisee. States may also have laws that apply to specific industries, such as service stations or auto dealerships.
Because of the complexities of franchise law, franchisors who decide to expand into other states should work with an experienced franchise attorney. Franchises are subject to complex regulations, and an attorney who is well-versed in the federal and state-level business laws related to franchising will know how to approach expansion across state lines.
Expanding your franchise system to another state can be a challenge. But if you have an experienced franchise law attorney — like the legal professionals at the Franchise & Business Law Group — you can rest assured that your expansion is in good hands.
The Franchise & Business Law Group, based in northern Utah, has helped many franchisors successfully navigate the hurdles of franchise system expansion across the states, and we can offer you the same expert guidance. Contact our Salt Lake City office today to learn more about our services, or to schedule a consultation to discuss how state franchise law may affect your business expansion plans.