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Franchise Law Compliance

There are three important areas of franchise law compliance: (1) Franchise Disclosure Laws, (2) Franchise Registration Laws, and (3) Franchise Relationship Laws.

1. Franchise Disclosure Laws
Your franchise attorney will help you prepare a Franchise Disclosure Document, Franchise Agreement and other franchise documentation. The Franchise Disclosure Document or "FDD" contains important information about the franchisor's business history; owners and other personnel; litigation; bankruptcy; franchise fees; franchise investment estimates; sources of supplies; advertising; training; and other information about the franchise system and the Franchise Agreement. The FDD also includes audited financial statements for the franchisor (or in some cases unaudited statements for start-up franchisors).

The FDD is an information prospectus, but the Franchise Agreement is the actual contract between the franchisor and the franchisee. The franchise contract governs issues such as termination and renewal of the franchise; the franchisee's rights related to selling the franchise; franchise fees and other payment requirements; and other rights and obligations of the parties.
2. Franchise Registration Laws
Some states require franchisors to get registered or qualify for exemption in order to legally offer or sale franchises in those states. Those states may include California, Connecticut, Florida, Hawaii, Illinois, Indiana, Kentucky, Maine, Maryland, Michigan, Minnesota, Nebraska, New York, North Carolina, North Dakota, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, Washington and Wisconsin. Several of these states require submission of a copy of your Franchise Disclosure Document along with other registration application materials and filing fees. Then, the state administrators in some states review your application materials and issue either an approval or comments requesting additional information or revisions.

The states in which you choose to register will depend on factors such as the geographic area where you are headquartered and your immediate and long term plans for expansion. International franchise expansion requires an analysis of franchise laws of foreign countries. For example, some Canadian provinces, including Alberta, New Brunswick, Ontario and Prince Edward Island, may require franchise registration. Your franchise lawyer will help you get registered or qualify for exemption in the states, provinces and countries that so require.
3. Franchise Relationship Laws
Some states have franchise relationship laws, which are laws concerning the relationship between franchisors and franchisees. These laws are intended to be helpful for franchisees and often override inconsistent franchise agreement terms. These laws may relate to termination and renewal of the franchise; venue for disputes; governing law; restrictions on the franchisor's right to collect rebates from suppliers; requirements that the franchisor act in good faith, provide similar treatment to similarly situated franchisees, and allow franchisees to form associations with other franchisees in the franchise system. Many states, including Oregon, do not have franchise relationship laws. Because of franchise relationship laws, it is important for franchisors to involve their franchise attorneys in structuring franchise contracts and systems and handling relationships with franchisees.

Especially in states that do not have franchise relationship laws, it is important that prospective franchisees ensure that the franchise agreement is fair before signing it. A franchise lawyer can help by reviewing and negotiating (if needed) the franchise agreement.

For existing franchisees, it is important to involve franchise legal counsel familiar with franchise relationship laws whenever issues arise that could implicate those laws (such as termination of the franchise, non-renewal of the franchise or franchise-related disputes).
Contact the franchise attorney at Peak Law Group now for more information about franchise compliance law! Peak Law Group's franchise attorney is based in Portland, Oregon and serves franchisors and franchisees nationwide.

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