State Guides: Franchise Disclosure Laws and Business Opportunity Disclosure Laws
Key Takeaways
State franchise disclosure laws are regulations that require franchisors to provide prospective franchisees with specific information before a franchise agreement is signed. These laws aim to protect small business owners by ensuring transparency about the franchise’s operations, financial health, and legal obligations. Key attributes include pre-sale disclosures, filing requirements, and the legal rights of franchisees, which vary from state to state.
It can be difficult to understand local laws as a small business owner and entrepreneur. When you’re looking to buy franchise rights or establish yourself as a franchisor, you have to understand complex federal and state laws.
Some states have more franchise disclosure requirements for prospective franchisees to protect small business owners. If you live in a state with specific franchise disclosure laws, this article can help your small business understand them and contact the agency responsible.
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Are There Federal Franchise Disclosure Laws?
The Federal Trade Commission (FTC) requires a franchisor to disclose certain documents to a prospective franchisee before signing a franchise agreement. This document is the Franchise Disclosure Document (FDD). The entrepreneur must get the document at the earliest of the following:
- The first personal meeting
- 10 business days before the signing of any franchise or related agreement or
- 10 business days before any payment.
Franchisors must follow the federal Franchise Rule. Some states have their own deadlines and rules.
What States Have Franchise Laws?
Some states have franchise investment laws. These laws require franchisors to provide pre-sale disclosures (circulars). Potential purchasers should treat the sales like selling a security. State laws treat the sale of a franchise like the sale of a security. The state does not allow the sale until the business files the disclosure. Some states require businesses to register the offering.
Fifteen states keep franchise offering circulars on file:
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Michigan
- Minnesota
- New York
- North Dakota
- Oregon
- Rhode Island
- South Dakota
- Virginia
- Washington
- Wisconsin
Registration requirements vary from state to state.
What Are State Small Business Opportunity Disclosure Laws?
Twenty-five states require business opportunity disclosure filings:
- Alaska
- California
- Connecticut
- Florida
- Georgia
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Michigan
- Minnesota
- Nebraska
- New Hampshire
- North Carolina
- Ohio
- Oklahoma
- South Carolina
- South Dakota
- Texas
- Utah
- Virginia
- Washington
These state laws give franchise purchasers legal rights like suing a business entity in the state for disclosure requirements violation. Potential franchisees in these states should know how to contact their franchise law administrators for more information about the protection these laws provide.
State Specific Franchise Agencies
We listed links above for the states with some form of franchise filings. Below are direct contact information, phone numbers, and emails for the states with notice and filing laws.
States That Require Only a Notice
The following states only require a franchise or business opportunity notice and not an entire filing.
Connecticut
Franchise Section 260
Constitution Plaza
Hartford, CT 06103
860-240-8299, Bsd@ct.gov
Maine
P.O. Box 1060
Augusta, ME 04332-1060
Michigan
Franchise Section
P.O. Box 30213
Lansing MI 48909
Oregon
Dept. of Insurance & Finance
Labor & Industries Building
Salem, OR 97310
503-378-4387
Before submitting any paperwork, make sure you talk to a franchise lawyer in your state to ensure it is correct.
States That Require a Filing
These states require a formal application and business opportunity or filing, no matter the business structure.
California
Department of Corporations
866-275-267
Sacramento
Department of Financial Protection and Innovation
2101 Arena Blvd.
Sacramento, CA 95834
San Francisco
Department of Financial Protection and Innovation
One Sansome St., Suite 600
San Francisco, CA 94104-4428
Los Angeles
Department of Financial Protection and Innovation
320 W. Fourth St., Suite 750
Los Angeles, CA 90013-2344
Florida (exemption possible)
Department of Agriculture and Consumer Services
Florida Capitol
Tallahassee, Florida 32399
800-435-7352
Hawaii
Franchise & Securities Division
State Department of Commerce and Consumer Affairs
P.O. Box 40 Honolulu, HI 96813
808-586-2744
Illinois
Franchise Division Office of Attorney General
500 S. Second St.
Springfield, IL 62706
217-782-4465
Those with hearing or speech disabilities can reach Illinois Franchise Division by using 7-1-1
Indiana
Office of Secretary of State
302 W. Washington St., Room. E111
Indianapolis, IN 46204
317-232-6681
Kentucky (business exemption available)
Office of the Attorney General
Consumer Protection Division
1024 Capitol Center Drive
Frankfort, KY 40601-8204
Maryland
Division of Securities
200 St. Paul Place, 20th Floor
Baltimore, MD 21202
410-576-6360
Minnesota
Department of Commerce
133 E. Seventh St.
St. Paul, MN 55101
651-296-6328
securities.commerce@state.mn.us
New York
Franchise & Securities Division
State Department of Law
120 Broadway, 23rd Floor
New York NY 10271
212-416-8211
North Dakota
Office of Securities Commission
600 East Boulevard, 5th Floor
Bismarck, ND 58505P
701-328-4712
Rhode Island
Department of Business Regulation
233 Richmond St., Suite 232
Providence, RI 02903
401-222-3048
South Dakota
Securities Regulation
124 S. Euclid Ave., 2nd Floor
Pierre, SD 57501
605- 773-3563
Virginia
State Corporation Commission
1300 E. Main St.
Richmond, VA 23219
804- 371-9051
Washington
Department of Financial Institutions
Securities Division
P.O. Box 9033
Olympia, WA 98507-9033
360-902-8738
Wisconsin
Department of Financial Institutions
P.O. Box 1768
Madison, WI 53701
608-266-0448
DFIDLSecuritiesEnforcement@dfi.wisconsin.gov
Franchise laws and agency links are subject to change. Before relying on these links, make sure you search for your state.
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What Are State Franchise Taxes?
Every franchisee has to pay business taxes. States with franchise tax laws may also have a franchise tax, a tax paid by the franchise to do business in that state.
It is not the same as a franchise fee, which the entrepreneur who wants to open a franchise location pays the franchisor. In return, the franchisee now has a license to the franchisor’s intellectual property or training initiatives.
Delaware’s franchise tax is based on a calculation ranging from $175 to $250,000. California’s franchise tax does not apply to business entities operating as corporations for tax purposes but applies to limited liability partnerships and companies. The minimum payment in California for a partnership franchise tax is $800.
Here is a list of states with franchise taxes:
- Alabama
- Arkansas
- California
- Delaware
- Georgia
- Illinois
- Louisiana
- Maine
- Mississippi
- New York
- North Carolina
- Oklahoma
- Tennessee
- Texas
A franchise tax is not an income tax. Your business entity must still pay your state taxes and federal government taxes required by the IRS.
Review Franchise Disclosure Laws in Your State With a Lawyer
Opening a new business is difficult, but opening a franchised business has unique difficulties. A small business law attorney can help you determine the best way to follow the laws and requirements in your state.
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