While every franchise business is subject to the franchise rules laid out by the Federal Trade Commission (FTC), franchises are also subject to state franchise laws and regulations as well. While the FTC franchise rule is aimed at all types of franchises, many state regulations are industry-specific. Further, franchise law is not a completely separate body of law, since it also involves other state laws such as trademark, intellectual property, and commercial laws. This means that there can be many different nuances between franchise laws from state to state.
Some states have comprehensive franchise regulations. The franchise laws in these states usually require the franchiser to register with the state government. While the FTC rule states that a Franchise Disclosure Document must be given to the franchisee, many states with comprehensive franchise laws will have further rules on what is to be provided to a potential franchisee. Various states may also require the franchiser to file the necessary documents with the state. States with comprehensive franchise laws will also generally review the franchisers financial information as well as any documents they plan to give to a potential franchisee.
The intention of these high-regulation states is to reduce fraudulent business practices. A state can deny the registration of a franchise business if they feel that franchise documents contain false or misleading information. These states may also deny registration if there are circumstances in which selling the franchise would be deceptive in some manner. The FTC website has information about which states have these comprehensive franchise laws.
There are other various franchise laws that apply in certain states. Many states have laws that regulate the relationship between the franchiser and the franchisee, called franchise relationship laws. These relationship laws mainly require the franchiser to have “good cause” before they can refuse to renew a franchise contract with the franchisee. This adds an extra layer of protection for the franchisee, who may want to extend the franchise contract many times over. Sometimes these relationship laws will determine what happens in the event of the death of the franchisee, and any devising rights the franchisee has to his or her heirs. Some states also have franchise laws that apply to specific industries, such as auto dealers or service stations. Further, the legal definition of a franchise can vary from state to state.
Because franchises are subject to a multi-layered variety of federal and state laws and regulations, it is highly recommended that you consult a franchise lawyer when registering, purchasing or selling a franchise. Many franchise laws are involved in the entire regulatory scheme of franchising, and an experienced franchise lawyer can help you navigate this complex path of regulations.