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Are Franchisor's Required to Meet Capitalization Requirements As a Condition for State Registration?

Yes. Prior to granting registration, many state regulators evaluate a franchisors capitalization. Although varied among the franchise registration states, state regulators as a condition for approving registration, generally, require that a franchisor possess sufficient capital and resources to enable the franchisor to fulfill its pre-opening support services and other services promised to the franchisee. If sufficient capital is not established then the state administrator, as a condition for granting registration, may impose an impound or escrow obligation on the franchisor.

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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