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How to Register Your FDD with Low Capital

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 09/22/2010 | Category: Start a Franchise | No comments

You you have franchised your business or you are in the process of having your FDD prepared. One of the next steps that you will most likely be taking will related to estabilshing a franchising corporate entity and eventually the preparation of an sudited opening balance sheet. That is‚ to register your FDD in New York (even if you are a brand new start-up franchisor) you must include an audited opening balance sheet in your FDD. The regulators will evaluate your balance sheet and if you do not possess enough capital (cash deposit balances)  a state administrator may deny your franchise registration. If this happens‚ there are solutions that will involve either the injection of capital or agreeing to certain regulatory restrictions.

Unfortunately‚ under New York franchise capitalization requirements‚ a short-term loan will increase your assets as well as your liabilities‚ and therefore will not improve your working capital. By securing a long-term loan that is not repayable for a minimum of 12 months‚ you can improve your business capital. This long-term loan can come from an officer or a stakeholder in the New York franchise.

Another solution for your capital needs may be to defer your initial fees. If you agree not to demand the initial fees until your New York franchisees open their business‚ the state may approve your registration. This will assure that you won't use these initial fees to fund your business before fulfilling your pre-opening obligations.

Other solutions to your New York franchise capitalization requirements include:

  • a guarantee of performance;
  • a surety bond; or
  • an informal undertaking. 

If you plan to franchise in New York‚ the state will require you to meet the franchise capitalization requirements. These requirements are to ensure that you have enough money to support your franchisees. A New York franchise attorney can advise you on the franchise capitalization requirements‚ and what alternative may work for you if your franchise in New York is undercapitalized.

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