Buying a Franchise? Check the FDD for Effective Date of Registration

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In order to offer or sell franchises in certain states with franchise disclosure laws, the franchisor must have effective registrations or notices in those states.

A state law may cover the offer or sale of a franchise if the prospect resides in the state, if the franchised business will be fully or partially operated in the state, or if any communications about the franchise offer or sale are made in, into or from the state.

State laws vary in terms of when they apply, so if any state with franchise disclosure laws is involved in any manner, you should check with the franchisor's lawyer or compliance manager about whether that state's law applies.

If the law applies and the franchisor does not have an effective registration or notice, you may be prohibited from offering or selling the franchise until after the franchisor obtains a registration or files a notice.

If the franchisor is registered with a state, the state and the effective date of the registration should be noted at the bottom of, or immediately after, the state cover page in the FDD. No effective date for a state with a state law likely means that the franchisor will need to obtain a registration from that state before you make an offer or sale covered by the law.

An old effective date likely means that the franchisor's FDD or registration will need to be updated before you make an offer or sale covered by the law.

If you have any question about a state, check with the franchisor's lawyer or compliance manager.

No effective date, or an effective date that is not within the previous 12-month period, for a notice state such as Florida, Indiana, Kentucky, Michigan, Nebraska, Texas or Utah, may not be a problem, since effective dates for those states are not required to be in the FDD, and since some of those states permit notices to remain effective indefinitely unless specific changes occur, such as address changes.

(This was the second post in a series of 11 posts on making compliant franchise sales. If you need to know more about these exact provisions, please ask for a copy of the Franchise Seller's Handbook. We will get one right out to you.)

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1 Comment

It's great that many franchisors use a multi-state FDD and deliver it via email, but that makes it easier to miss effective dates.

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About this Entry

This page contains a single entry by Warren Lewis published on December 9, 2014 11:16 PM.

The QSR Workers Strike is Spreading. How Have Your Prepared Your Franchise Operators? was the previous entry in this blog.

The 6 Benefits of a Bespoke Franchise Resolution Mechanism is the next entry in this blog.

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