State

A little under one-third of the states have franchise and/or business opportunity laws and regulations involving some type of annual filing for companies who want to sell franchises. (Business opportunities generally involve smaller investments and a different level of involvement in the buyer’s locations.) The filing may or may not include a copy of the disclosure document. Most states with franchise registration laws have examiners who review the disclosure document and who may require revisions to bring the document into compliance with their state’s law.

At the state level, the examiners who review franchise disclosure documents are often the same as those who review securities offerings. The North American Securities Administrators’ Association is a group of franchise and securities examiners who provide guidelines for compliance with their states’ laws and with the Franchise Rule at the same time. Which brings me to a very important point: respect your franchise examiner. Occasionally it may seem as if they are being difficult, being unreasonable or making their own rules. The truth is that a state franchise examiner has a mission to protect prospective franchisees covered by that particular state’s laws. They have a certain amount of leeway to interpret those laws. If you want to be successful in filing a franchise registration and not have to argue with an examiner over a five-page detailed “laundry list” comment letter, you (and your attorney) will learn when it makes sense to be proactive with disclosures. Usually the key is to identify exactly what about a particular disclosure (or lack thereof) is making the examiner uncomfortable with the client’s proposed franchise sales. Often you can negotiate an alternative wording to the change initially requested – one that your client and the examiner can both live with.

Franchise registration logistics are similar to any other government filing situation. Some states require a CD copy only; others require paper but allow an additional CD copy and others require both. Most filings require fees, and in most cases those vary depending on whether you are filing documents for a particular client on a particular franchise concept for the first time. Some states only want a letter and a check. Requirements change from year to year, so staying current is vital. CCH, the vendor known for being the main provider for legal content in various fields such as tax and securities, has a franchise law compilation known as the Business Franchise Guide. In addition to the paper updates that some people prefer, they offer an online subscription. States have begun putting more of their own content online, so in several cases you can find the information for free.