Business Case Study; Franchising State Registrations and Litigation Risks

Business Case Study; Franchising State Registrations and Litigation Risks

For those companies considering franchising it is wise to carefully chose where you wish to franchise. Some states are completely litigious and problematic such as NY, MD, NJ, CA, TX, WA, IL and CO. States such as GA, NC, VA, NV, AZ, OH, OR, FL, WI, MI, TN are becoming more so. To top things off there are 13 registration states where Franchisors must file their UFOCs Uniform Franchise Offering Circulars and these documents are reviewed, not for viability of concept or accuracy, but to make sure certain things are disclosed to prospective franchise buyers.

Problematic states for franchise registration are CA, IL, MD, NY, HA, WA, but these are not the only registrations states, believe it or not states like ND are also? Why do these states have registration laws above and beyond that of the Federal Trade Commission rules and regulations on Franchising? Two-fold; one, they want to know who exactly is selling franchises and doing business in their state and two, they want to protect their legal state residents from fraud.

Interestingly enough there is no fraud in franchising really, it is a barrier to entry however and it sure helps those high-fee-charging franchising lawiars. Most franchisors will end up choosing to not franchise in some states merely due to the onerous rules and regulations and or the litigiousness of the people in that state. It is wise to pay attention to these issues, because these speed bumps can slow growth in a franchising company.