Franchise Legislation Within the US 2023

Legend:

States having no franchise or business opportunity laws

States having franchise registration laws only States having business opportunity laws

States having both franchise registration and business opportunity laws

Notes:

• Within Indiana, Michigan and Wisconsin, registration is effective immediately upon the application being filed. Oregon regulates franchises but no filing is required there.

• Florida, Nebraska, Kentucky, Utah and Texas require a simple exemption filing. Once that is filed, a franchisor can begin to offer franchises.

• Georgia and South Carolina provide an exemption if the franchisor has filed a State trademark registration.

• Connecticut, Maine, South Carolina and North Carolina provide an exemption if the franchisor has obtained a Federal registration of its trademark

• Six States require registration of advertising prior to use. (CA, MD, MN, NY, ND, WA)

• New York, Oklahoma and Rhode Island require the FDD be provided to a prospective franchisee at the earlier of (i) the 1st personal meeting held to discuss the franchise or (ii) 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

• Michigan and Oregon require the FDD be provided to a prospective franchisee 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).

• Many states also have State Relationship Laws that impact issues such as franchise termination or non-renewal. Your franchise legal counsel can advise you on relevant issues involving these states.

• Check with your franchise legal counsel for additional details and updates which are available.

 Fractional Franchises (Two years and 20%)

 Large Investment (Over $1M excluding R/E)

 Sophisticated Franchisee (Five Yrs. + $5M Net Worth)

 Minimal Payment (pays/commits less than $500/first 6 mos.)

 Leased Departments

 Single Trademark License Exclusion

 Fall under other regulations (PMPA)

 Officers and directors of the franchisee (very specific def.)

 CAUTION: The FTC Exemptions are NOT honored by all states

◦ Patchwork Quilt

◦ Need an attorney to decipher

 Technology-based shared services

◦ Use an app to drive business

◦ Avoid franchising by top-down fee structure

◦ Uber, Lyft, Airbnb

 Certification programs

◦ Certification Mark, not a Trademark

 TM/SM = Source of Product or Service

 CM = Characteristics of a Product or Service

◦ Cannot be used as a TM by the owner of the mark

◦ Must be willing to offer to all who qualify

◦ Cannot have exclusive territories

◦ Can easily stray into a franchise relationship

 The decision should be goal driven

◦ Distance

◦ Speed

◦ Obstacles

◦ Risk tolerance

 A Volvo or a Rocket Ship?

 Don’t have to choose only one vehicle

 Don’t decide to franchise (or whatever)

◦ Instead, decide:

 Do I want to build a third-party distribution channel?

 Do I want that channel to be branded?

 If it is branded, do I want to control quality?

 How do I want to be paid?

 The law (or your lawyer) should never dictate your good business decisions

 The franchisee should make a return on the time they invest

◦ No different than if they were to go out and get a job

◦ Salary should be “market rate”

 The franchisee should make a return on their investment

◦ No different than if they invested in a stock

◦ Return should be commensurate with what they would make if they were to make an investment of similar risk

◦ Ability to sell back their investment at the end of the term

 Franchisees expect that they will need to build their business

◦ Will expect these returns in three years or less

 Annual Cash-on-Cash R.O.I. at the unit level – our criteria

◦ 15% for Owner Operators

◦ 20% for Area Developers (who will support additional overhead)

 Occasional exceptions