El Pollo Loco Verdict Makes ‘New Law,’ Attorney Says
Author: Beth Ewen
Publication: Franchise Times
Posted on Blog July 29, 2015
Those who are familiar with franchising are well aware of the registration states that require franchisors to register their franchise offering before they may offer or sell a franchise in that state. Many franchisors and franchisees, however, are not as familiar with (or unaware of) those states that require exemption or registration filings under state Business Opportunity statutes, including, for example, Florida, Georgia, North Carolina, South Carolina, Kentucky and Connecticut, which vary in their requirements. (This list does not include all states with Business Opportunity requirements). Indeed, many franchisors offer and sell in such states before ensuring that they are in compliance with applicable Business Opportunity statutes. Before offering in any state, franchisors should first determine whether the state is a registration state and, if not, whether the state has a Business Opportunity statute. If it does, franchisors then need to determine whether their franchise offering constitutes a “Business Opportunity” under the applicable state statute and/or whether an exemption applies. This often depends on whether the franchisor offers a marketing program in conjunction with the licensing of a registered trademark. If it does, some states do not require any filings, and others simply require an exemption filing or other similar notice, which may be annual or a one-time filing. If the franchisor’s mark is not registered, however, some states require specific disclosures that must be included in the franchisor’s Franchise Disclosure Document, along with other requirements such as filing fees, submission of financial statements and the FDD, and may even require the franchisor to establish a trust account or obtain a surety bond. Both franchisors and franchisees should be familiar with these state specific Business Opportunity laws in addition to state specific franchise disclosure and relationship laws.