Franchising your business is exciting, however as you know the Federal Trade Commission regulates the franchise industry. The required set of disclosures determined by the FTC to offer the sale of franchises are collectively known as the “FDD” and these Federal guidelines were last revised May 07. Once the FDD has been drafted and reviewed by a franchise attorney, then you must register it in the different states you wish to offer franchises. Offering the sale of franchises without registering the FDD is illegal and will result in much grief including fines, litigation and sanctions.
Most all states are painless when it comes to registering your FDD; we will call those Non-registration states. Non-registration states are simple and in most cases, you do nothing. There are a handful of these states that may require you to comply with their business opportunity laws, sending in a small fee along with your FDD and you’re done. There are fourteen states that take a stricter approach before allowing you to offer franchises in their state. Each state charges a fee ranging from $500-$800, not including the fee the franchise attorney charges for their services to file the documents with the state. This simply means that the FDDs must be approved in these states before you can sell franchises in that state. We will refer to these states as Registration States and they are listed below:
This does not mean that you should avoid registering your franchise in these states. In fact, if the FDD is written properly, there is rarely a problem. Regardless of where our clients are located, we prepare the FDD to comply with these tough Registration States (and we have had 100% success getting approvals). We always recommend to clients to limit which Registration States to file. No need to register in all fourteen states right away. Depending on your circumstances, it is always best to stay within your surrounding states for the first year of franchising to maintain control and ensure that your first few franchisees succeed.
Clients who use our services are provided with various resources, which include an extensive list of registration filing requirements for each state as well as the most recent FTC guidelines for the FDD documents. Besides the initial registration fee, these fourteen registration states require that each year you renew your registration (fee is typically half of the initial registration fee plus attorney fees). Each year you have to update your FDD anyway within 110 days from the end of your fiscal year. The difference is that in the Registration States you pay a fee and need their continuous approval to offer franchises in that state.
For additonal information on franchising your business please visit The Franchise Maker Website.