Entrepreneurship is an exciting endeavor.
The prospect of being your own boss is appealing to even more individuals in 2023. Partly due to the success of the gig economy.
But also because COVID completely changed the business landscape.
However, the steps to finalize your freedom deserve careful review.
Read on to decide whether you need to deal with franchise registration in your state. Or not.
What States Require Franchise Disclosure Document (FDD) Registration?
First step is determining if you’re in a franchise registration state. This will help you accurately outline your plan of attack.
Similar to our nation’s founding, there are 13 which fit this category.
Registration States:
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Michigan
- Minnesota
- New York
- North Dakota
- Rhode Island
- Virginia
- Washington
- Wisconsin
The territories above require franchisors to perform an annual registration. It’s good to keep this list handy if you’re planning to operate across state lines.
Because missing a step delays your successful launch and pursuit of potential franchisees.
Registration Process for Franchise Filing States
If your state franchise laws necessitate registration, see below for the steps involved. But check off one other box before moving forward.
Have a professional eye inspect your Franchise Disclosure Document prior. To confirm that everything is in order.
Now that we’ve covered that, continue on.
Entire process:
- State regulators look over the franchise registration application
- The Franchise Disclosure Document is reviewed
- They also study any financial statements or projections
- A filing fee is processed
If approved, you can now sell franchises in the state
Normally you can expect an answer between 45 to 90 days. However, this isn’t set in stone. To get a better idea, a franchise lawyer can provide a realistic time frame.
FDD registration states aren’t looking for accuracy necessarily. But mainly to ensure that your franchise complies with the requirements of their regulation division.
Also, note that your regulatory oversight agency may add a caveat as you seek approval. Based on assurances of your future financial situation.
Next, let’s see what your ideal options are for selling units to prospective franchisees.
What States Are Best for Franchisors?
A bit of a loaded question, the variables you include in this assessment depend on your specific goals.
If it’s to open multiple franchises in the state, you may view extra red tape as a major hurdle. On the other hand, it might be clearable if you’re running a single location.
Even if your state isn’t listed among those that require FDD registration, filing fees of some kind still apply.
Good news for those in the other 37 states.
Despite a franchise filing fee, examiners won’t go through your FDD with a fine-toothed comb. You should still check for accuracy, but it allows you to breathe a bit more during the process.
Other business opportunity laws exist for South Dakota and a few others. If you have a federally registered trademark.
They are:
- Connecticut
- Florida
- Kentucky
- Nebraska
- North Carolina
- South Carolina
- Texas
- Utah
By now, you’ve probably caught on to the many nuances of deciding on what needs to be filed. But don’t worry if the answers aren’t all there presently.
There will be a way to cut through the “legalese” before we’re through.
Ideal Business Opportunities to Sell Franchises
Hopefully, you have clearly defined reasons for entering the world of franchising. Research should be done ahead of time to find the best market.
A SWOT analysis is worth taking the time to create, as it will provide key information. But don’t worry about putting together a business plan.
Your franchisor will be able to share theirs with you.
Connecting with franchisees on LinkedIn or at networking events can offer valuable insights as well. Have a set of questions handy that you ask each person.
Let them know you’re interested in learning more about the industry. And actively listen.
This can assist in narrowing down your options before meeting with franchisors.
Next, we’ll look at a well-known example of supplemental franchise laws.
Does the Franchise Rule Require Federal Registration?
The regulatory oversight agency which grants the power to sell franchises is the Federal Trade Commission (FTC). Compliance is your best friend in keeping them happy.
Let’s quickly look at how the Federal Franchise Rule applies to our topic at hand.
A piece of advice before we do that. For peace of mind, consider bringing on a franchise attorney. Their comprehensive knowledge of the legal system pays for itself. And then some.
Additionally, because every state is different, you’ll glean valuable insights to guide later decisions.
Let’s quickly define this standard and its purpose.
You must provide prospective franchisees with a disclosure document containing 23 items. The purpose is to aid potential buyers in weighing the risks and benefits of a partnership with you.
Ultimately, Federal Franchise Rules don’t require franchisors like yourself to file an FDD. Unless you’ve completed the registration process.
Properly Meeting Federal Franchise Laws
Under this concrete rule, your business arrangement will be defined as a “franchise” after meeting three conditions:
- Supply a trademark or commercial symbol
- Provide franchisees with support for operating their businesses
Require a minimum of $500 during the startup stage (initial 6 months)
As mentioned earlier, franchise laws vary from one state to another. Determining which ones require FDD registration can be more straightforward than you think.
The FTC has plenty of resources on its website. Or type, “meeting federal franchise laws” into Brave search.
Perhaps the idea of all this extra effort is de-motivating. And you’d prefer to leave it to others.
So you can focus on your strengths. We got you covered.
In conclusion, achieving successful franchise state registrations starts with handing off the task.
Reidel Law Firm and Franchise Disclosure Document Review
As experts in franchise law, we can help you review FDDs. Increasing the possibility that you will continue to provide for yourself and your family. Well into the future.
In addition, our legal team can advise you on ways to shore up gaps in the following areas:
- Review personal guaranty and real estate control docs
- Franchisee formation, guidance, and asset protection
- Franchise operating compliance audit and coaching
We’ve worked with both franchisors and franchisees. Giving us a well-rounded knowledge of what should be included in all 23 items.
By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.
Call Reidel Law Firm today at (832) 510-3292 or fill out our contact form. And see how our advice can bring you success in the franchise business.
