Which States Require Franchise Registration? A Franchisor's Guide

Before a franchisor can offer or sell a franchise in the United States, they must comply with both federal disclosure requirements and the laws of each state where the franchise will be offered. This article provides general educational information about state franchise registration requirements. It is not legal advice.

Federal vs. State Franchise Regulation

At the federal level, the FTC Franchise Rule requires franchisors to provide a Franchise Disclosure Document (FDD) to prospective franchisees at least 14 calendar days before signing or payment. However, the FTC does not require franchisors to register the FDD with the federal government.

Several states have additional requirements. These states generally fall into three categories:

Registration States

Registration states require franchisors to file their FDD with a state agency and receive approval before offering or selling franchises in that state. The state regulator reviews the FDD for compliance with state law and may issue comment letters requiring revisions before approval.

The most common franchise registration states include: California, New York, Illinois, Maryland, Virginia, Washington, Minnesota, Hawaii, Indiana, Rhode Island, South Dakota, North Dakota, Wisconsin, and Oregon.

Filing States

Filing states require franchisors to file a notice or exemption application but do not conduct a substantive review of the FDD. Florida, Texas, and Utah are examples of states with filing or business opportunity law requirements.

Non-Registration States

Most states do not have franchise registration or filing requirements. However, franchisors must still comply with the federal FTC Franchise Rule when offering franchises in these states.

What Triggers Registration Requirements?

Registration is generally triggered by offering or selling a franchise to a resident of a registration state, regardless of where the franchisor is headquartered. This means that even if your business is based in Florida, if you offer a franchise to a prospect in New York, you must register in New York before proceeding.

Exemptions

Many registration states offer exemptions that can reduce or eliminate the registration burden. Common exemptions include:

• Large franchisor exemption: Exemptions for franchisors with a certain net worth or number of existing franchisees.
• Experienced franchisor exemption: Exemptions for franchisors that have been in business for a minimum number of years.
• Optional filing exemption: Some states allow franchisors to file a notice rather than a full registration if they meet certain criteria.

Exemption requirements vary by state. Franchisors should consult with legal counsel to determine which exemptions may apply to their system.

Filing Fees by State

State filing fees typically range from $250 to $750 per state, depending on the jurisdiction. Some states also require annual renewal fees. Legal fees for preparing and filing registration applications are separate from the state filing fees.

How Long Does Registration Take?

The timeline varies significantly by state. Some states approve within a few weeks, while others can take several months. States like New York and California are known for longer review periods, especially if the examiner issues comment letters requiring FDD revisions.

For assistance with multi-state franchise registration, consult a licensed franchise attorney before offering or selling franchises in any state.

This article is for general informational purposes only and does not constitute legal advice. State franchise laws change frequently. Consult a licensed franchise attorney before offering or selling franchises in any state.