The franchise laws are comprised of a combination of federal and state laws that govern the offer and sale of franchises. The Federal Franchise Rule is the overarching federal franchise law that governs all franchise transactions throughout the United States, in all fifty states. The Federal Franchise Rule is enforced by the Federal Trade Commission and the central requirement of the Federal Franchise Rule and the FTC’s enforcement activities relate to a franchisor’s disclosure of a franchise disclosure document prior to the offer or sale of any franchise.
The Federal Franchise Rule sets the minimum standards regarding a franchisor’s disclosure obligations and leaves open to each individual state the option to supplement the federal law with state specific franchise laws and requirements. In addition to the Federal Franchise Rule, franchise laws are also comprised of state specific franchise laws and regulation relating to a franchisor’s disclosure obligations, the relationship between franchisor and franchisee and the review and registration franchise disclosure documents.
States that require the registration of a FDD with the local state administrator are known as “franchise registration states”. States that require the filing of a notice or exemption request with a state administrator – but not the registration or filing of a FDD – are known as “franchise filing states“. States that require neither registration nor a filing are typically referred to as “non-registration states”. For additional information about state franchise laws, whether or not a state is a franchise registration state, a filing state, or a non-registration state and the applicable laws of each state, visit state specific franchise laws page.
Within almost every franchise agreement is a choice of law provision where franchisor and franchisee typically agree that the laws of the state where the franchisor is located governs. When it comes to properly disclosing a FDD, at all times, a franchisor must comply with the Federal Franchise Rule and the federal FDD disclosure obligations. When a franchise transaction involves a particular state (i.e., the franchisor is selling franchises from within a particular state, a prospective franchisee is a resident of a particular state, the franchisor is a resident of a particular state or the franchised business will be located within a particular state) then the respective state franchise laws will also govern.
At the federal level the Federal Franchise Rule does not require that a franchisor register or file its FDD with the FTC or any other federal agency. Under federal law a Franchisor must monitor its own internal compliance and ensure that it properly prepares, maintains, issues and discloses its FDD in accordance with the requirements of federal law. If the franchise transaction involves or may involve a franchise registration state then the franchisor must have obtained registration of its FDD with the particular state prior to offering or selling a franchise.
Find out about our Franchise Counsel Program and learn how we can assist your brand in successfully managing your FDD registrations and notice filings. To learn more about particular state franchise laws, visit our state specific franchise laws page.
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