Of the states that require registration or filing of franchisors' Franchise Disclosure Document (FDD) (California, Hawaii, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin), only California, Minnesota, Rhode Island, Washington and Wisconsin have online filing options. Of those 5 states, only Washington and Wisconsin require online filing. Wisconsin has required online filing for several years. However, Washington has only recently stopped accepting paper filings. We have researched the online systems and what is needed for these filings to prepare us for the 2020 renewal season.
NASAA (the North American Securities Administrators Association, Inc.) has adopted a new format for the State Cover Sheets that appear in Franchise Disclosure Documents ("FDDs") filed as part of state franchise registration applications. Below are some FAQs on this new requirement:
All franchisors and their legal counsel focus on the annual Franchise Disclosure Document update that must be completed within 120 days of the franchisor's fiscal year end. Typically, everyone is relieved that the project is done for the year. However, franchisors have an ongoing legal obligation under both federal and state franchise laws to amend the FDD during the year if a material change has occurred.
As we previously reported last year, on May 8, 2017, the North American Securities Administrators Association (NASAA) voted to adopt a Financial Performance Representation Commentary for franchises (FPR Commentary). The FPR Commentary supplements the 2008 Franchise Registration and Disclosure Guidelines commentary issued by NASAA in 2009 and addresses questions that have been raised over the year by franchisor representatives and state franchise examiners about financial performance representations in Item 19 of the Franchise Disclosure Document.
It will soon be that time of year when we will be working with our franchisor clients to prepare the required year-end updates to their Franchise Disclosure Document and file state registration renewal applications.
Franchisors should not mistakenly assume that a sale of an existing franchise business by the franchise owner is not subject to the registration and disclosure requirements of the franchise laws. When a franchisee is selling its franchise business, is the franchisor obligated to provide the prospective buyer with its current Franchise Disclosure Document? If the franchise business is in a franchise registration state, does the franchisor have to be registered to offer and sell franchises in that state for the franchisee sale/transfer to take place?