As you know, the Federal Trade Commission regulates the franchise industry. The required set of disclosures required by the FTC to offer the sale of franchises are collectively known as the Franchise Disclosure Document or “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.
Franchise Non-Registration States
Most all states are painless when it comes to registering your FDD, we will call those franchise non-registration states. Franchise non-registration states are simple, and in most cases, you do nothing. That’s right, once you approved to offer franchises in your home state you are automatically good to go in all the franchise non-registration states. 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. Those states are commonly referred to as post-card registration states. The name stems from concept that you are really doing nothing more than just sending in a post card with a few pieces of information on it to let these states know you are offering franchises. The post-card registration states are noted in grey color on the map above.
Of these franchise non-registration states there are a couple of them that stipulate if you have a federally trademark for your principal mark (which is your name and what you are prominently using to brand your business, like your logo) there is nothing you need to do. Not to worry if your trademarks are not registered yet, you can submit a filing that will still allow you to offer franchises in that state.
Franchise Registration States
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 offer (sell) franchises in that state. We will refer to these states as franchise registration states and they are noted in burgundy color on the map above.
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 (learn about our philosophy when it comes to creating franchise friendly documents and putting together the FDD). Regardless of where our clients are located, we prepare the FDD to comply with these tough franchise registration states (and by the way, we have had 100% success getting approvals). We always recommend to clients to limit which franchise registration states to file. No need to register in all fourteen states right away. Depending on your circumstances, it is typically best to stay within your surrounding states for the first year of franchising to maintain control and ensure that your first few franchisees succeed (read about where it is best to franchise your business).
Clients who use our franchise development services are provided with various resources, which include an extensive list of registration requirements for each state as well as best practice and the updated provisions for the FDD documents. Besides the initial registration fee, these fourteen franchise 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 (more on the topic of updates and renewals for the FDD). The difference is that in the franchise registration states you pay a fee and need their continuous approval to sell franchises in that state. There are may factors state examiners take into consideration when approving or denying you the ability offer franchises in their state.
For additional information on franchising your business please call us 1-877-617-5177. We will be happy to answer all of your questions about franchise registration states, some the criteria used to determine if you get approved or denied and any other questions you may have about franchising.
- Where You Should Register Your Franchise
- Is Franchising Specific to Your State
- Breaking Down the Franchise Disclosure Document
- Why Franchising is a Regulated Industry
- Customized Franchise Development
- How to Franchise a Business
