When developing your franchise program, one of the first areas to address is applicable franchise laws.

Both federal franchise laws and state franchise laws may apply, depending upon where the Franchisor is located and in what states the Franchisor plans to sell franchises.

Under federal franchise laws, the Federal Trade Commission is the responsible agency. Federal franchise laws require a Franchisor to give each prospective Franchisee a properly-drafted Franchise Disclosure Document (FDD) the first time they meet in person. The contents and format of the FDD are detailed in federal franchise laws.

Fifteen states have franchise laws requiring a Franchisor to register with the appropriate state agency before offering franchises for sale in the state. State franchise laws typically require registration if (1) the Franchisor is located in a registration state, (2) the franchise is offered to residents of a registration state, or (3) the franchise will be operated in the registration state.

Hawaii, California, Oregon, Washington, North and South Dakota, Minnesota, Illinois, Wisconsin, Michigan, Indiana, Virginia, Maryland, New York and Rhode Island are the fifteen states with franchise laws. However, Michigan franchise laws mandate simply filing a notice and a state-specific cover page, and no registration is required in Oregon.

State franchise laws require registration fees as high as $750. Because state franchise laws pertaining to the registration process are complex, a Franchisor should also budget for legal fees for state registrations.

Often, state franchise laws empower the state agency to review and require changes to the FDD before granting registration. This can be true even when the FDD meets federal franchise laws.

Other states have franchise laws requiring a simple filing and payment of a fee in order to sell franchises in the state under certain circumstances. Such state franchise laws do not involve a state agency actually reviewing the FDD. Examples of such states are Florida, Texas and Connecticut.

Be sure to become well informed about federal franchise laws and state franchise laws if you are interested in franchising your business.

If you would like to speak with one of our franchise consultants today, please don’t hesitate to call (706) 356-5637!