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:
- North Carolina
- South Carolina
- South Dakota
Franchises that don’t have federally registered trademarks can also file in Georgia and Louisiana.
Franchise Non-Registration States List
- New Hampshire
- New Jersey
- New Mexico
- West Virginia
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.