US FEDERAL FRANCHISE LAW
The Federal Trade Commission Franchise Rule applies in all 50 US states, the District of Columbia, Puerto Rico, and other territories of the United States. The FTC Franchise Rule can be accessed here.
The FTC Franchise Rule requires franchisors to deliver a Franchise Disclosure Document (FDD) to each prospective franchisee at least 14 calendar days before: (1) the prospective franchisee signs a binding agreement with the franchisor in connection with the proposed franchise sale; or (2) the prospective franchisee makes any payment to the franchisor in connection with the proposed franchise sale.
The FTC Franchise Rule also specifies the content and format of the FDD. The FTC Franchise Rule contains lengthy and detailed requirements for the content and format of the FDD. In some cases they provide specific language to be used for certain disclosures. The FDD is required to be organized into 23 items, and is required to include certain attachments.
Laws in more than a dozen states also require franchisors to provide a similar disclosure document. All of these states accept the FDD format for the disclosure document, with certain changes necessary to comply with state law.
STATE FRANCHISE LAW SUMMARY
The FTC Franchise Rule does not preempt state franchise laws. So, franchisor must comply with applicable state franchise laws too. State franchise laws are designed to protect residents of the state against unfair or deceptive practices by franchisors. Generally, the law of the state where the franchisee resides or where the franchisee will operate the franchised business is the applicable state law for regulatory compliance. Not all states have laws or regulations directly affecting franchising.
In those states that do, have relevant laws, the laws or regulations generally fall into one or more of the following categories:
1. Laws that require a franchisor to register the franchise before it offers or sells a franchise (franchise registration laws);
2. Laws that require a franchisor to provide certain information to prospective franchisees before they purchase a franchise (franchise disclosure laws);
3. Laws that regulate the legal relationship between the franchisor and franchisee (franchise relationship laws); and
4. Laws that require a franchisor to register to obtain an exemption under business opportunity laws that may otherwise affect franchising (business opportunity exemption registration laws).
The following pages include basic summaries of key points of state laws and regulations directly affecting general business format franchising. The summaries do not include any laws or regulations regarding product distribution franchises such as motor vehicle dealerships, farm or industrial equipment dealerships, fuel distributorships, alcoholic beverage distributorships, etc. They do not summarize any state laws generally affecting businesses, or any state laws dealing with particular industries.
Lawyers and non-lawyers alike should consult an experienced franchise attorney to determine the possible impact of these laws and regulations on any particular situation. It is far more efficient and economical to comply with these laws and regulations proactively at the beginning rather than reactively after there has been a complaint filed by a franchisee or a competitor.
We work with start-up and existing franchisors throughout the United States (and internationally). We would be delighted to discuss US franchise law with you. Please contact us for a free initial consultation about your particular situation.
Vinson Franchise Law Firm