While laws in Regulating States give franchisees a private cause of action, the FTC’s Franchise Rule does not. In most states, where only the FTC’s Franchise Rule applies, franchisees depend on the FTC to enforce the Franchise Rule on their behalf. Unfortunately, the FTC has not done this once in the last 10 years.
What is the FTC rule?
What is the FTC disclosure requirement?
What states require franchisors to file a disclosure form?
How many days does a franchisee have to review a development agreement?
Does the FTC prohibit states from prescribing additional disclosures for the FDD?
Do franchises have to file advertising?
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What is the FTC franchise rule?
The FTC Franchise Rule also specifies the content and format of the FDD. The FTC Franchise Rule contains lengthy and detailed requirements for the content and format of the FDD. In some cases they provide specific language to be used for certain disclosures. The FDD is required to be organized into 23 items, and is required to include certain attachments.
What states are franchised under the FTC?
The Federal Trade Commission Franchise Rule applies in all 50 US states, the District of Columbia, Puerto Rico, and other territories of the United States. The FTC Franchise Rule can be accessed here.
What is a franchise law?
1. Laws that require a franchisor to register the franchise before it offers or sells a franchise (franchise registration laws);
How many items are required in a FDD?
The FDD is required to be organized into 23 items, and is required to include certain attachments. Laws in more than a dozen states also require franchisors to provide a similar disclosure document. All of these states accept the FDD format for the disclosure document, with certain changes necessary to comply with state law.
What is the law of the state where a franchisee resides?
Generally, the law of the state where the franchisee resides or where the franchisee will operate the franchised business is the applicable state law for regulatory compliance . Not all states have laws or regulations directly affecting franchising.
Do franchise laws summarize state laws?
They do not summarize any state laws generally affecting businesses, or any state laws dealing with particular industries. Lawyers and non-lawyers alike should consult an experienced franchise attorney to determine the possible impact of these laws and regulations on any particular situation.
Does the FTC preempt state franchise laws?
The FTC Franchise Rule does not preempt state franchise laws. So, franchisor must comply with applicable state franchise laws too. State franchise laws are designed to protect residents of the state against unfair or deceptive practices by franchisors. Generally, the law of the state where the franchisee resides or where ...
What is the FTC rule?
Under the FTC Rule, the FTC has the authority to seek civil penalties against a franchisor for violations of the FTC Rule. Each of the pre-sale disclosure states has similar authority to seek penalties for violations of its requirements. Violations may include offering or selling an unregistered franchise, failing to timely provide the FDD to a prospective franchisee, or misrepresentation. In addition, officers of the franchisor may have personal liability if they had knowledge of or participated in the violations.
What is the FTC disclosure requirement?
The FTC Rule requires franchisors to provide a prospective franchisee a copy of the franchisor’s current franchise disclosure document (FDD) prior to the sale of a franchise. (The FDD delivery requirements under federal and state law are detailed below.) The FTC Rule applies throughout the United States and its territories and possessions, including Puerto Rico.
What states require franchisors to file a disclosure form?
California, Hawaii, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, and Washington also require franchisors to file a Franchise Seller Disclosure Form for each person who may be engaged in soliciting, offering or selling franchises on behalf of the franchisor. A form must be submitted for the franchisor’s own employees, for the employees of the franchisor’s parent(s) or affiliates, and for any independent third party (i.e., franchise broker) that may be providing sales services on behalf of the franchisor in the state. New York and Washington also require the registration of franchise brokers.
How many days does a franchisee have to review a development agreement?
to a development agreement, the specific interest rate payable by the franchisee, or other contractual terms that were not previously disclosed in the FDD or its attachments, will trigger the seven-calendar-day review period.These timing requirements may not be waived.
Does the FTC prohibit states from prescribing additional disclosures for the FDD?
The FTC Rule does not prohibit states from prescribing additional disclosures for the FDD or mandating other requirements. In fact, since its promulgation of the FTC Rule in 1979, the FTC has made clear that it does not intend to preempt the franchise laws of any state or local government except to the extent that they are inconsistent with the FTC Rule. A law is not inconsistent with the FTC Rule if it affords prospective franchisees equal or greater protection, such as registration of FDDs, more extensive disclosures, and, as discussed below, a longer FDD delivery period. Consequently, franchisors must comply with both the FTC Rule and more stringent state franchise laws.
Do franchises have to file advertising?
Several states require franchisors to file all advertising for franchises with the state within a prescribed time period prior to use. Such advertising is generally deemed approved unless the state objects within a specified time period. These states generally define a franchise advertisement as any published communication directed to a prospective franchisee that discusses the sale of a franchise. These states include:
Pivotal questions
The pivotal questions in the field of franchise relationships are: How prevalent are franchise relationship abuses? Should these abuses, if they exist, be regulated? And if so, at the federal or state level, or both?
State of the states
To date, the state franchise relationship laws vary considerably in the types of abuses they attempt to eliminate. The most prevalent issues addressed by these statutes are unjust terminations and non-renewals. Almost all, if not all, of the relationship laws address these issues.
Resolving the problem
The solution to this problem is easy to identify: preempt state legislation (and common law) and establish federal standards for regulating franchise relationships. Is this likely to happen? Not without building a political consensus that the benefits are worth the price.
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What is the FTC rule?
Under the FTC Rule, the FTC has the authority to seek civil penalties against a franchisor for violations of the FTC Rule. Each of the pre-sale disclosure states has similar authority to seek penalties for violations of its requirements. Violations may include offering or selling an unregistered franchise, failing to timely provide the FDD to a prospective franchisee, or misrepresentation. In addition, officers of the franchisor may have personal liability if they had knowledge of or participated in the violations.
What is the FTC disclosure requirement?
The FTC Rule requires franchisors to provide a prospective franchisee a copy of the franchisor’s current franchise disclosure document (FDD) prior to the sale of a franchise. (The FDD delivery requirements under federal and state law are detailed below.) The FTC Rule applies throughout the United States and its territories and possessions, including Puerto Rico.
What states require franchisors to file a disclosure form?
California, Hawaii, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, and Washington also require franchisors to file a Franchise Seller Disclosure Form for each person who may be engaged in soliciting, offering or selling franchises on behalf of the franchisor. A form must be submitted for the franchisor’s own employees, for the employees of the franchisor’s parent(s) or affiliates, and for any independent third party (i.e., franchise broker) that may be providing sales services on behalf of the franchisor in the state. New York and Washington also require the registration of franchise brokers.
How many days does a franchisee have to review a development agreement?
to a development agreement, the specific interest rate payable by the franchisee, or other contractual terms that were not previously disclosed in the FDD or its attachments, will trigger the seven-calendar-day review period.These timing requirements may not be waived.
Does the FTC prohibit states from prescribing additional disclosures for the FDD?
The FTC Rule does not prohibit states from prescribing additional disclosures for the FDD or mandating other requirements. In fact, since its promulgation of the FTC Rule in 1979, the FTC has made clear that it does not intend to preempt the franchise laws of any state or local government except to the extent that they are inconsistent with the FTC Rule. A law is not inconsistent with the FTC Rule if it affords prospective franchisees equal or greater protection, such as registration of FDDs, more extensive disclosures, and, as discussed below, a longer FDD delivery period. Consequently, franchisors must comply with both the FTC Rule and more stringent state franchise laws.
Do franchises have to file advertising?
Several states require franchisors to file all advertising for franchises with the state within a prescribed time period prior to use. Such advertising is generally deemed approved unless the state objects within a specified time period. These states generally define a franchise advertisement as any published communication directed to a prospective franchisee that discusses the sale of a franchise. These states include:
