What are Franchise Registration States?

What Potential Business Owners Need to Know About Franchise Registration States

To enjoy the benefits of a franchise business, franchisors are responsible for registering their franchise each year in every state they plan to do business. Potential franchisees should know how the process works. Knowing what to look out for is important to avoid potential problems and cover your bases.

How the Franchise Registration Process Works

Franchise registration can be a complicated process for franchisors. Many states have a regulatory oversight agency that reviews every Franchise Disclosure Document (FDD) of any company that tries to offer a franchise for sale within its state. Additionally, several of these states have different requirements to register the franchise with various required disclosures that must be filed correctly. In addition, many of these states require an annual registration to ensure that the franchise complies with its requirements.

These oversight agencies carefully review the FDD to ensure it is amenable to state regulations. Typically, the state must comment on an FDD and require a franchisor to clarify specific provisions when necessary. The franchisor is then asked to resubmit their documentation with the proper edits recommended by the state. The entire process can be grueling and take months to gain approval if it is not handled correctly.

There are three franchise state registration types. It is vital that the franchisor (or his attorney) reads each state’s rules and regulations. The three primary types of franchise state registrations are:

• Franchise Filing States require franchisors to file an FDD and pay a fee without additional approval from the state. 
• Franchise Registration States require franchisors to file an FDD, pay a fee, and seek the state’s approval. 
• Franchise Non-Registration States require franchisors to submit their FDDs and follow Federal Trade Commission (FTC) guidelines in order to offer and sell franchises in that state.

Which States are Franchise Registration States?

• California
• Maryland
• Michigan
• Minnesota
• New York
• North Dakota
• Rhode Island
• Hawaii
• Illinois
• Indiana
• Virginia
• Washington
• Wisconsin

When a franchise's trademarks aren’t registered with the United States Patent and Trademark Office, then additional states will require FDD registration. These states are Connecticut, North Carolina, South Carolina, and Maine.

What is Involved in FDD Registration?

FDD registration means that a state examiner reviews an FDD and franchise registration application and grants franchisors the right to offer and sell franchises within the state. The state regulators do not verify the accuracy of the disclosures contained in the FDD but determine if the FDD satisfies state regulatory requirements. Additionally, state examiners will review the franchise’s financial statements and may condition registration based on the satisfaction of financial assurance requirements.

Franchise Filing States: States Requiring Franchise Registration

In addition to franchise registration states, there are also franchise filing states. Franchise filing states require the franchisor to file and pay a fee but don't require documents to seek approval to sell franchises as registration states do. Franchise filing states for franchises with a federally registered trademark include:

• Connecticut
• Florida
• Louisiana
• Kentucky
• Maine
• Nebraska
• North Carolina
• South Carolina
• South Dakota
• Texas
• Utah

Franchises that don’t have federally registered trademarks can also file in Georgia and Louisiana.

Franchise Non-Registration States List

• Alabama
• Alaska
• Arizona
• Arkansas
• Colorado
• Delaware
• Georgia
• Idaho
• Iowa
• Kansas
• Massachusetts
• Mississippi
• Missouri
• Montana
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• Oklahoma
• Oregon
• Pennsylvania
• Tennessee
• Vermont
• West Virginia
• Wyoming

State vs Federal Franchise Rules

At the federal level, franchising is regulated by the FTC’s Federal Franchise Rule. Every state is different and has different rules, so it's good to understand the rules for the state(s) you’d like to do business in. These rules and regulations can be challenging to keep up with. Of course, it’s the franchisor’s job to keep up with all of these franchise registration state requirements, but as a potential investor, understanding the process is important.

Due Diligence Before Owning a Franchise

Before deciding to invest in a franchise business, seek the advice and guidance of a Franchise Consultant. This expert will help you determine your franchising path by looking at your skills, experience, and finances. As you get closer to investing in a franchise, a franchise attorney can help you look through the FDD and bring up any red flags in regard to state regulations.

A red flag can include when there are no state registrations listed in the FDD at all. As a prospective franchise owner, you don’t have to register a franchise business. But it’s beneficial to know that franchisors aren’t required to register in states where they don’t plan to sell franchise businesses. If the franchisor avoids selling franchise businesses in registration states, then the franchisor could be concerned about their FDD or sales tactics. The franchisor discloses where you can buy a franchise (and can’t) in the cover pages and the charts in item 20 of the FDD.

Another part of the due diligence process is attending discovery day and making your final decision to buy a franchise or not after the franchisee validation process. Both involve vetting the franchisor and current franchisees to get a sense of what owning a franchise is like. Owning a franchise business is a serious commitment and shouldn’t be taken lightly. Doing your due diligence can stop you from buying a business that isn’t ideal for you.

What are Franchise Registration States?

Franchise registration is important for franchisors to keep in mind because they need to register their business annually in whichever state(s) they do business in. While you are only considering franchise ownership, knowing the process can benefit you. There are three types of franchise state registrations: registration states, which require franchisors to file a FDD, pay a fee, and seek the state’s approval; franchise filing states, which require franchisors to file an FDD and pay a fee; and franchise non-registration states, which only require an FDD filing. 

Franchise registration states include California, Maryland, Michigan, Minnesota, New York, and North Dakota. Franchise filing states include Connecticut, Florida, Kentucky, South Carolina, and South Dakota. Seeking assistance from a franchise consultant helps you determine if franchise ownership is for you and any potential red flags including not having a full item 20, which states where the business is registered. With support and training from franchisors and guidance from consultants, it’s no wonder 92% of franchise owners are still in business after two years. Here is the franchise registration states map.