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Franchise Registration States

Written by: John Power

Article Overview: The franchise world is divided into registration and non-registration states. This will affect your franchise development program.

Franchise Registration States

There are 14 Registration States where you must register, and generally receive approval, before you sell franchises in the state. The filing fees vary by state from $250 to $750. They are: California, Hawaii, Illinois, Indiana*, Maryland, Michigan*, Minnesota, New York, North Dakota, South Dakota, Rhode Island, Virginia, Washington, and Wisconsin*.

* = Document states. No approval required, but a fee must be paid and documents filed.

Virginia, California, Maryland, New York, and Illinois are considered to be some of the most difficult states for the registration and approval process.

There are some additional states that have business opportunity laws, requiring that franchisors file and pay a fee before selling franchises in the state:

They are: Florida, Nebraska, Utah, Kentucky, and Texas.

In most cases, it is necessary to file an annual update or renewal, with an additional fee. The date that you file can be determined by your fiscal year end, by the calendar year end, or by the anniversary date of your original filing.

Considerations:

• If you are in a registration state, you must register in your state to sell franchises in your state, but can sell franchises in non-registration states without approval. (New York requires businesses located in the state to be approved before selling franchises anywhere.)
• If you receive inquires from Internet or other advertisements from registration states, and if you are not approved to sell in that state, you may take their name and contact information and say something like, "We are not yet approved to sell franchises in your state, and will contact you in the future when we are approved." You should not discuss specifics or send literature.
• If you offer franchising on your web site, you will need to insert a disclaimer that you are not offering franchises in states where you are not approved.
• If you, the franchise owner, or the franchised location, is in one or more registration states, you will need to be registered in all of the states so involved.
• If the franchisee lives in one state, even part of the year, but operates the franchise in another state, you will need to consider where you need to be registered and approved.
• If you sell to a small corporation, the residence state of the owners, along with the business location, and the state you are in, will determine registration requirements.
• If you sell to a public corporation, the state in which they are located, along with the business location, and the state you are in, will determine registration requirements.
• It will be necessary to prepare state Addenda for some of these and other states to account for differences in business law between states.
• If you operate from a registration state, and a prospective franchisee comes from a non-registration state to meet you in the registration state, you will be required to register in your state to sell to him, even though he will be in a non-registration state.
• If you take money from a prospective franchisee that is from a state where you are not registered, or if he is going to operate a franchise in a state where you are not registered, you will be fined, will be required to return the money, and must disclose this infraction for 10 years on your UFOC.
• You need to know where the prospective franchisee is getting their money, who their partners are, and what their business structure will be.
• We generally recomment that you apply to the registration states on a "targeted basis," rather than applying to all at once. Once you are approved by a registration state you will need to renew each year.

Because requirements vary from state to state, it is important that you consult with an attorney or qualified consultant before selling franchises in any new state. It may be necessary to rework or rewrite your FDD/Franchise Agreement and obtain a new legal approval before applying to the state.

The process of dealing with the registration states may appear to be daunting, but those who regularly make appliction to the registration states are familiar with the process and can guide you through it.

More information can be found at: www.biltmorefranchise.com

Related Articles
  The Cost of a Franchise Offering
  Franchise Sales in the First Year
  State Franchise Disclosure and Registration Laws
  Government Regulation of Franchises
  Register Your Business Name

Article Tags: advertisements, anniversary, business opportunity, calendar year, california hawaii, california maryland, document states, fiscal year, franch, franchises, illinois indiana, li li, maryland new york, michigan minnesota, opportunity laws, south dakota, specifics, virginia washington, year end, york north dakota



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