If you ever find yourself purchasing a franchise, you might hear about something called a Franchise Disclosure Document (FDD). As a potential franchisee, this document is a wonderful tool to use to determine whether to buy into a franchise. The FDD is a legal document that discloses information about the franchise such as fees, legal relationship between the franchisee and franchisor, opportunities, and other information about the franchise. The Federal Trade Commission (FTC) prescribes rules as to what must be included in the FDD but there is no federal registration or review of them NOR is there a private cause of action for violating the disclosure rules. In an effort to help regulate the franchise system in their respective states, some states require franchisors to register their franchise before the franchisor can begin to sell a franchise is that state. Here are those states and what they currently require:


California

FDD must be registered with the California Department of Financial Protection and Innovation. Registration fee is $675, annual renewal fee is $450.

Under California law, a business relationship is a “Franchise” if:

  1. the business will be substantially associated with the franchisor’s trademark;

  2. the franchisee will directly or indirectly pay a fee to the franchisor for the right to engage in the business and use the franchisor’s trademark; and,

  3. the franchisee will operate the business under a marketing plan or system prescribed in substantial part by the franchisor.

If a franchise is not registered, California can issue administrative fines of up to $2,500 and obtain a civil fine of up to $10,000 per violation along with other punishments.


Hawaii

FDD must be registered with the Business Registration Division of the Hawaii State Dept. of Commerce and Consumer Affairs. Registration and annual fees are $450.

In Hawaii, a “Franchise” is, an oral or written contract or agreement, either expressed or implied, in which a person grants to another person, a license to use a trade name, service mark, trademark, logotype or related characteristic in which there is a community interest in the business of offering, selling, or distributing goods or services at wholesale or retail, leasing, or otherwise, and in which the franchisee is required to pay, directly or indirectly, a franchise fee.

If a franchise is not registered, Hawaii can issue civil fines up to $100,000 along with other punishments.


Illinois

FDD must be registered with the Franchise Bureau of the Illinois Attorney General. Registration fee is $500, annual renewal fee is $100.

In Illinois, a “Franchise” is any written or oral agreement that expressly or implicitly provides for the marketing, sale or distribution of products or services: (a) under a marketing plan or system that is prescribed or suggested in substantial part by the franchisor; (b) that are substantially associated with the franchisor’s trademark; and (c) that involves the direct or indirect payment of a franchise fee of $500 or more.

If a franchise is not registered, Illinois can issue civil fines along with other punishments.


Indiana

FDD must be registered with the Securities Division of the Indiana Secretary of State. Registration fee is $500, annual renewal fee is $250.

In Indiana, “Franchise” means a contract by which:

(1) a franchisee is granted the right to engage in the business of dispensing goods or services, under a marketing plan or system prescribed in substantial part by a franchisor.

(2) the operation of the franchisee’s business pursuant to such a plan is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and

(3) the person granted the right to engage in this business is required to pay a franchise fee.

If a franchise is not registered, Indiana can issue civil fines up to $10,000 per violation along with other punishments.


Maryland

FDD must be registered with the Securities Division of the Maryland Attorney General’s Office. Registration fee is $500, annual renewal fee is $250.

In Maryland, a “Franchise” means an expressed or implied, oral or written agreement in which:

(i) a purchaser is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor;

(ii) the operation of the business under the marketing plan or system is associated substantially with the trademark, service mark, trade name, logotype, advertising, or other commercial symbol that designates the franchisor or its affiliate; and

(iii) the purchaser must pay, directly or indirectly, a franchise fee.

If a franchise is not registered, Maryland can issue civil fees along with other punishments.


Michigan

To sell franchises in Michigan, you should mail a letter to the Michigan Attorney General indicating intent. Registration fee is $250, no annual renewal fee.

In Michigan, a “Franchise” means a contract or agreement, either express or implied, whether oral or written, between 2 or more persons to which all of the following apply:

  • A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor.

  • A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate.

  • The franchisee is required to pay, directly or indirectly, a franchise fee.

If a franchise is not registered, Michigan may issue fines up to $10,000 along with other punishments.


Minnesota

FDD must be registered with the Securities Division of the Minnesota Department of Commerce. Registration fee is $400, annual renewal fee is $200.

In Minnesota, a “Franchise” is defined as:

  • any relationship, whether by written or oral agreement where

  • the franchisee is granted the right to engage in the business of offering or distributing goods or services using the franchisor’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics;

  • the franchisor and franchisee have a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise; and

  • for which the franchisee pays, directly or indirectly, a franchise fee.

If a franchise is not registered, Minnesota may issue fines up to $2,000 for violations, obtain fines up to $25,000 for failure to comply with judgment or court orders and up to $10,000 for willful violations of its Act along with other punishments.


New York

FDD must be registered with The New York State Department of Law. Registration fee is $750, annual renewal fee is $150.

In New York, a “Franchise” exists in either of two circumstances: (i) where a franchisee, in return for a “franchise fee”, is granted the right to sell goods or services under a marketing plan or system prescribed in substantial part by the franchisor, or (ii) where a franchisee, in return for a “franchise fee”, is granted the right to sell or distribute goods or services substantially associated with the franchisor’s trademark, logo, advertising or other commercial symbol .

If a franchise is not registered, In New York, misdemeanor violations of its Act are subject to up to a $1,000 fine along with other punishments.


North Dakota

FDD must be registered with the North Dakota Securities Department. Registration fee is $250, annual renewal fee is $100.

In North Dakota, a “Franchise” means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (1) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; (2) The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and (3) The franchisee is required to pay, directly or indirectly, a franchise fee.

If a franchise is not registered, North Dakota may issue civil fines along with other punishments.


South Dakota

FDD must be registered with the Division of Insurance and Securities Regulation of the South Dakota Department of Labor and Regulation. Registration fee is $250, annual renewal fee is $150.

In South Dakota, a “Franchise,” is any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that:

(a) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark;

(b) The franchisor will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation; and

(c) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate;

If a franchise is not registered, South Dakota can issue administrative fines up to $5,000 per violation of a stop order along with other punishments.


Rhode Island

FDD must be registered with the Rhode Island Department of Business Regulation, Securities Division. Registration fee is $600, annual renewal fee is $300.

In Rhode Island, a “Franchise” means

(i) An oral or written agreement, either express or implied, which:

(A) Grants the right to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by the franchisor;

(B) Requires payment of a franchise fee in excess of five hundred dollars ($500) to a franchisor or its affiliate; and

(C) Allows the franchise business to be substantially associated with a trademark, service mark, trade name, logotype, advertising, or other commercial symbol of or designating the franchisor or its affiliate; or

(ii) A master franchise.

If a franchise is not registered, Rhode Island can issue fines up to $50,000 per violation and up to $5,000 for a violation of a stop order along with other punishments.


Virginia

FDD must be registered with the Virginia State Corporation Commission. Registration fee is $500, annual renewal fee is $250.

In Virginia, a “Franchise” means a written contract or agreement between two or more persons, by which:

1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services at retail under a marketing plan or system prescribed in substantial part by a franchisor;

2. The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and

3. The franchisee is required to pay, directly or indirectly, a franchise fee of $500 or more.

If a franchise is not registered, 2 Violators of the Virginia franchise laws can receive a civil fine of up to $25,000 per violation and a criminal fine of up to $5,000 along with other punishments.


Washington

FDD must be registered with the Securities Division of the Washington State Department of Financial Institutions. Registration fee is $600, annual renewal fee is $100.

In Washington, a “Franchise” is defined as:

(a) An agreement, expressed or implied, oral or written, by which:

(i) A person is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan prescribed or suggested in substantial part by the grantor or its affiliate;

(ii) The operation of the business is substantially associated with a trademark, service mark, trade name, advertising, or other commercial symbol designating, owned by, or licensed by the grantor or its affiliate; and

(iii) The person pays, agrees to pay, or is required to pay, directly or indirectly, a franchise fee.

If a franchise is not registered, Washington can obtain civil fines of up to $25,000 for violation of an injunction44, $2,000 for violations45 and up to $5,000 for willful violations along with other punishments.


Wisconsin

FDD must be registered with the Securities Division of the Wisconsin State Department of Financial Institutions. Registration fee is $400 and cannot be renewed, thus a new FDD must be registered after each year.

In Wisconsin, a “Franchise” means a contract or agreement, either express or implied, whether oral or written, between 2 or more persons by which:

1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed or suggested in substantial part by a franchisor; and

2. The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s business and trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and

3. The franchisee is required to pay, directly or indirectly, a franchise fee.

If a franchise is not registered, Wisconsin can obtain civil fines up to $5,000 along with other punishments.


For each state, if a franchise is not properly registered, or someone violates any part of the state’s franchise act, many different punishments can be enacted. The punishments can be either civil, criminal, or in some cases, both. If the franchisor violates the act, it might have to pay huge sums of money to the state and also the franchisee. As such it is important to know your state franchise rights and obligations.

Those are the 14 states that require more information out of the franchisor prior to them selling a franchise. While some may see this as an annoyance or even overbearing, it is quite necessary. The franchise industry is quite unregulated and filled with scrupulous franchisors who take advantage of the lack of regulation. By requiring registration, these fourteen (14) states have at least made some steps toward regulation (albeit not enough). It is important to note that these states DO NOT review the FDD for accuracy. They simply review the information to make sure it is complete. If you have any legal questions as a potential, current, or former franchisee about your franchise, feel free to contact us at Fortman Law, we can help.