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