Expanding your franchise opportunity into multiple states is a great way to grow your brand. There are numerous reasons for introducing your brand to a new market, such as more exposure in new territories where perhaps there isn’t as much competition. Isn’t it simple math? Your statewide franchise locations are profitable, so why not expand into neighboring states? Or beyond?
But before you sell a franchise into another state, you need to make sure you comply with that state’s franchise regulations, if there are any. State franchise laws pre-empt the Federal Trade Commission’s (FTC) Franchise Rule, so the first thing you need to do is find out if you need to register in that particular state. Some states require registration and filing of the Uniform Franchise Registration Application; some require you file a Notice of Intent, Uniform Consent to Service of Process and a copy of the Franchise Disclosure Document (FDD), while others simply require the filing of an exemption form and pay a nominal fee. Florida and Utah are examples of states that require this.
You see, with franchising the only uniformity in regulation is the Franchise Rule, enforced by the FTC. The FTC mandates that the franchisor provides prospective franchisees with the FDD at least 14 days before they are asked to sign any contract or pay any money to the franchisor. But, if you already have a franchise, this is old news. What you might not know is the law in the state next-door. Because of the assortment of restrictions attached to state regulations, franchisors must have an accurate understanding of the requirements of state law when commencing to do business in a franchise registration state.
For example, in Alabama, there is no franchise registration law and therefore registration is not required. But, in Illinois, registration is mandatory, with a recommended filing time of 90 to 120 days. The registration filing fee is $500 and requires franchisors to file an FDD with Illinois Addenda and related documents. In Maine, there is no registration required, but the business opportunity law is enacted. Business opportunity law provides exemption for franchisors having a federally registered trademark. If you do not have a federally registered trademark, you must file your FDD with the state and are required to obtain a $30,000 surety bond or escrow account. In some business opportunity states, the requirement is having a registered mark, and the statute fails to distinguish between a federal or state mark. Georgia has such a statute.
Clearly, before you take the plunge into multi-state franchising, you need to understand each state’s regulations. Many franchisors seek the counsel of an experienced franchise attorney who also will prepare and file your FDD. If you are considering franchise expansion into other states, contact an experienced franchise attorney or be sure you know what you’re doing.