How to Legally Offer and Sell Franchises: A State-by-State Guide

Who it’s for:

• Emerging franchisors preparing for their first multi-state expansion.
• Established brands auditing their 2025 compliance schedules.
• Business owners currently in the process of franchising their existing concepts.
• Franchise brokers and sales teams who need to know where they can legally discuss opportunities.

What it offers:

• A comprehensive roadmap of the 2025 franchise regulatory landscape.
• Clear distinctions between registration, filing, and non-registration states.
• Critical updates on 2025 fee increases and NASAA disclosure guidelines.
• A summary of the legal risks associated with non-compliant franchise sales.

Key Takeaways:

• You cannot legally offer or sell franchises in “Registration States” without prior government approval.
• “Filing States” require a notice and fee but skip the formal review process.
• Non-compliance can lead to “rescission,” where the contract is voided and you may be required to refund up to the franchisee’s entire investment.
• Federal trademark registration can simplify your compliance burden in several “Business Opportunity” states.

At The Franchise & Business Law Group, we often see a common misconception among new franchisors. Many believe that once they have a completed Franchise Disclosure Document (FDD), they are ready to sell nationwide. While the FTC Franchise Rule provides a federal baseline, many states have their own regulatory gatekeepers.

Navigating these regulations requires a strategic map. To legally offer and sell franchises in 2025, you must categorize every state into one of three distinct buckets.

1. The “Big 14”: Franchise Registration States

These are the most highly regulated jurisdictions in the country. In these states, a franchise attorney must submit your FDD to a state agency for a formal legal review. You cannot legally offer your franchise opportunity to a resident of these states until your registration is officially effective.

The Registration States include:

• California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.

2025 Updates: California recently enacted Assembly Bill 137, which significantly increased filing fees as of July 1, 2025. An initial registration in California now costs $1,865, while renewals are $1,245. Additionally, the NASAA Franchise Project Group issued new 2025 guidance requiring much more specificity in Items 5, 6, and 7. If your fees are volatile due to market conditions, you must now provide clear formulas or ranges rather than vague disclaimers.

2. The Filing and “Notice” States

Filing states represent a middle ground. These states do not put your FDD through a rigorous multi-month review, but they do require you to check in with a formal filing and payment before you start selling.

• Annual Filing States: Florida and Utah require an annual notice and a modest fee to maintain your right to sell.
• One-Time Filing States: Other states including Texas and Nebraska require a one-time “Business Opportunity Exemption” filing.
• The Trademark Advantage: In states like Connecticut, North Carolina, and South Carolina, having a federally registered trademark allows you to claim an exemption from more burdensome “Business Opportunity” filings. This illustrates why intellectual property protection is a cornerstone of a smart franchise growth strategy.

3. Non-Registration (Federal) States

In the remaining “Open” states such as Arizona, Colorado, or Tennessee, there is no state-level franchise filing. However, you are still governed by the FTC’s regulations, including the 14-day disclosure rule. You must provide a compliant FDD to a prospect at least 14 days before a prospective franchisee can sign any agreement or pay money.

The Risks of “Dark Sales” (Non-Compliance)

Selling a franchise in a registration state without an effective permit is often called a “dark sale.” The legal consequences for this mistake are severe:

1. Rescission Rights: The state may grant the franchisee the right to void the contract. You may be required to refund the initial franchise fee, royalties, and even their equipment and real estate costs.
2. State Fines: Regulators can impose civil penalties that reach up to $25,000 per violation.
3. Item 3 Disclosure: Any state enforcement action must be disclosed in your FDD for years to come. This permanent record can deter future high-quality candidates and institutional lenders.
4. Enforcement Orders: States can issue “Stop Orders” that prevent you from selling any further franchises in that state for a set period.

Frequently Asked Questions (FAQ)

Can I talk to a prospect at a franchise expo if I am not registered in their state? You can generally have a high-level conversation, but you cannot offer the franchise or provide your FDD until you are registered. Most franchisors display a disclaimer at their booth to clarify that the advertisement is not a formal offering in restricted states.

What is the “120-Day Rule”? Under the FTC Rule, your FDD expires 120 days after your fiscal year-end. If you do not update and renew your FDD within this window, you must stop selling in all states until your new document is ready.

Do I have to register in every state at once? No. We recommend a phased expansion. You should only register in states where you have active leads or a strategic reason to grow. This approach saves on filing fees, provides the opportunity to ensure capacity to support growth, and the administrative burden of annual renewals.

How long does the registration process take? In review states it can take up to six or more months, but more typically we see responses from state examiners received between 60 and 90 days after the initial filing if the filing is made close to the end of the 120 day renewal window. It is vital to plan your sales calendar around these lead times to avoid missing out on qualified prospects.

Building a Compliant Foundation for Growth

The map of franchise regulations is constantly shifting. Between new state fees in California and evolving NASAA disclosure requirements, a document that was compliant last year may be a liability today. Successful expansion is not just about finding the right partners; it is about ensuring those partnerships are built on a legally sound foundation.

By categorizing states early and planning your filing calendar, you can avoid the costly penalties of non-compliance and focus on what matters most: scaling your brand. Whether you are filing your very first FDD or managing a national network of registrations, professional legal oversight is your best defense against the risks of “dark sales.”

Ready to Expand Your Franchise Safely?

Do not let registration hurdles slow down your growth. The team at The Franchise & Business Law Group is here to streamline your compliance process and protect your investment.

Contact us today to schedule a consultation. We can perform a comprehensive audit of your current FDD and help you build a strategic state-by-state expansion plan for 2026 and forward.