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Franchise Registration and Business Opportunity States
Some states require franchisors to register with a state agency before selling franchises in that state. Those states are commonly called “registration states.” There are currently 14 franchise registration states as well as several other business opportunity states that require registration in order to sell franchises.
Franchise Registration States
The following states require franchise registration: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.
The registration process varies in each state. Most registration states require franchisors to send in their Franchise Disclosure Document, a filing fee, and other required documents to the designated state agency before the franchisors can begin selling their franchises. The time between filing and approval varies state by state depending on the level of examination by each state agency.
For example, franchise registration in Wisconsin only involves filing the Franchise Disclosure Document and application online, and registration is effective upon receipt by the Wisconsin Department of Financial Institutions. Michigan only requires the filing of a Notice of Intent. But there are other states that perform a detailed review of the Franchise Disclosure Document and advertising materials. These states may provide comments about the FDD and advertising materials from the state agency and often require changes before registration is complete.
Registration is effective for one year in registration states. The franchisor must file a renewal application each year. The renewal process generally involves submitting an updated Franchise Disclosure Document and a renewal fee. Most states require the franchisor to submit a “redline” version of the FDD to show any changes that were made to the previously filed FDD.
Franchisors are required to revise the Franchise Disclosure Document within a reasonable time to include any material changes to the franchise business. Registration states also have requirements for submitting amendments to the FDD. This typically involves submitting a new application, filing fee, updated FDD, and redline version of the FDD. To find out what constitutes a material change that requires updating the FDD, contact an experienced franchise attorney.
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Business Opportunity States
Not only do franchisors need to be aware of the registration requirements in franchise registration states, but also requirements in business opportunity states. Business opportunity laws vary state by state, and only some states require filings for franchisors. As a general rule, a franchisor usually does not have to apply for authorization to sell the franchise if the franchisor has a federally registered trademark, although other considerations may apply, depending on the state involved. It is important to check the various state requirements in the states where you plan on selling your franchise in order to be in compliance.
Some business opportunity states that require franchisors to file documents with the state before selling franchises include Connecticut, Florida, Kentucky, Nebraska, North Carolina, South Carolina, Texas and Utah.
As an example, franchisors in Utah must file a Notice of Exemption each year. Business opportunities must file specific information with the Utah Division of Consumer Protection before offering the business opportunity for sale. If a franchisor is in compliance with the Federal Trade Commission rules, then the franchisor is exempt from the business opportunity filings. The franchisor is only required to file the Notice of Exemption each year plus a filing fee.
As additional examples, states like Texas and Nebraska require only a one-time filing of a Notice of Exemption and filing fee in order to sell franchises in those states. The Notice of Exemption verifies that the franchisor is in compliance with the Federal Trade Commission rules.
The franchise team of attorneys at Denton Peterson can assist you with the franchise registration process in registration and business opportunity states. An experienced franchise attorney can draft your franchise’s franchise disclosure document and prepare the required registration materials needed in the states you plan to sell your franchise.
Please contact our offices for more information about how our franchise team can assist you with your franchise needs.
Denton Peterson Dunn, PLLC 1930 N Arboleda #200
Mesa, AZ 85213