The Federal Trade Commission (FTC) requires franchisors to prepare a disclosure document called a Franchise Disclosure Document (FDD) that complies with the FTC guidelines for providing information that explains the franchised business opportunity being offered. The FDD must be presented to a prospective franchise purchaser 14 calendar days prior to signing a franchise agreement or paying any franchise fee to the franchisor. This federal law did not preempt the states from enacting more restrictive franchise legislation, and nineteen have elected to do so by either requiring pre-sale registration with their state franchise regulators or by controlling franchised business relationships within their boundaries, or both. Some states regulate franchising through their business opportunity laws and require pre-sale registration of state-specific disclosure documents, but will grant an exemption from registration if certain conditions are met.
Read about Florida franchising law
The North American Securities Administrators Association (NASAA) issued more comprehensive franchise disclosure guidelines in June 2008, which have been updated and adopted by those states that enacted franchise registration laws. These franchise registration states now require all FDD’s to comply with the NASAA guidelines, which have become the national disclosure standard in the franchise industry. Most of these states not only require the pre-sale registration of franchise offerings, but also conduct exhaustive examinations of FDD’s to ensure legal compliance before granting any franchise registrations. Some states restrict the content of advertising materials provided to prospective investors and also regulate other forms of business opportunity sales. States across the U.S. and countries all over the world have their own statutes and regulations that franchisors must be in compliance with in order to offer and sell franchised business opportunities.
Read more about the roles of franchisors and franchisees
To set up and operate a franchise business requires knowledge of all the federal and state franchise investment laws, federal and state trademark laws, business opportunity laws, and laws specifically addressing certain industries. The fact is that franchising is a highly regulated field. Laws change, are updated, and new franchise regulations come into existence. Individual states vary their requirements, all of which make the business of franchising a maze of regulatory minefields. Find out more about recent changes in franchise law.
Our attorneys at Protonentis & Remley, P.A. stay current with changing laws and have years of experience in providing guidance and legal counsel to both franchisors and franchisees.