Federal baseline
One federal rule, twenty-three items.
At the federal level the Federal Trade Commission enforces the Franchise Rule, codified at 16 C.F.R. Part 436. A franchisor must give a prospective franchisee its Franchise Disclosure Document at least 14 calendar days before the candidate signs a binding agreement or pays any consideration. The FDD is standardised into 23 items: the franchisor's history, the track record of the people running it, litigation and bankruptcy, initial and ongoing fees, the estimated initial investment, territory, restrictions on what you may sell and from whom you must buy, and — if the franchisor chooses to make one — a financial performance representation.
The Rule is a disclosure rule. The FTC does not review or approve an FDD before it is used, and a document that complies with the Rule says nothing about whether the investment is sound. That judgement is left to you, your advisers and, in a minority of states, a state examiner.
- Items 5 and 6: the initial franchise fee and every other fee you will pay
- Item 7: the estimated initial investment, including working capital
- Item 12: the territory, and what the franchisor may still do inside it
- Item 19: financial performance representations, if the franchisor makes any
- Item 20: outlets opened, closed, transferred and reacquired, with franchisee contacts
- Item 21: audited financial statements. Item 22: the contracts you will sign
State layer
Thirteen states read the document before you do.
State law sits on top of the federal floor and is often stricter. Published legal guidance sorts the states into four groups. Thirteen registration states require a franchisor to register its FDD with a state securities or franchise regulator before offering or selling there, and examiners in states such as California, New York, Illinois, Maryland and Virginia regularly issue comment letters that force changes or state-specific addenda.
Filing states ask for a notice or exemption filing without a merits review. Business-opportunity states exempt a franchisor from their business-opportunity statutes on condition that it holds a federally registered principal trademark; without one, a full business-opportunity filing, disclosure and bond can apply. In the remaining states and the District of Columbia, the FTC's 14-day rule is the only pre-sale requirement, with state deceptive-practice law and common-law fraud behind it.
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| Tier | States | What the state requires |
|---|---|---|
| Registration | California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, Virginia, Washington, Wisconsin | FDD registered, and in several states reviewed, before any offer or sale; renewed annually |
| Notice filing | Florida, Kentucky, Nebraska, South Dakota, Texas, Utah | A notice or exemption filing and fee; no merits review |
| Business opportunity | Connecticut, Georgia, Louisiana, Maine, North Carolina, South Carolina | Exempt only with a USPTO-registered principal trademark; otherwise filing and bond |
| Non-registration | The remaining states and the District of Columbia | The FTC 14-day disclosure; no state filing |
A registered FDD is not an endorsed one. Registration means a regulator has read the document for compliance; it is not a judgement that the franchise is a good investment.
After you sign
Relationship laws, and a new rule for brokers.
The franchise agreement casts you as an independent contractor licensing a system, not as the franchisor's employee, partner or agent. That is what shields the franchisor from liability for how you run the business, and it is why the capital, the lease and the operating risk are yours. Agreements usually separate monetary defaults, such as unpaid or under-reported royalties, from non-monetary ones, such as unapproved products, signage or lapsed insurance, and commonly allow 10 to 30 days to cure.
Some states override the contract. Under the California Franchise Relations Act a franchisor may terminate before the term ends only for good cause, after at least 60 days' notice and a cure period of no less than 60 days, which need not exceed 75. Transfers stay under the agreement's control: franchisor approval, a transfer fee, often a required remodel, and a general release before a unit can be sold on.
California has also legislated for the people who sell franchises. SB 919 amends the California Franchise Investment Law to require franchise brokers to register with the Department of Financial Protection and Innovation and to give buyers a Uniform Franchise Broker Disclosure Document, including what the broker is paid. The statute makes those provisions operative only once they are funded — on 1 July 2026 or a year after the appropriation, whichever is later — so check whether they are in force on the day you read this. NASAA has published a model broker registration act for other states.
