Federal Franchise Laws

The Federal Trade Commission (“FTC”) implements and enforces federal franchise laws that regulate the offer or sale of franchises in the United States.  The FTC defines a franchise as a business relationship with these three components:

1.  Use of the franchisor’s trademark;

2.  Providing assistance or control to the franchisee; and

3.  Payment of $735 or more to the franchisor in the first six months.

There is often confusion about what constitutes a franchise (compared to a license, for example), but any business can be considered a franchise if those three components exist.

The FTC Franchise Rule requires franchisors and franchise companies to disclose prospective franchisee buyers with a Franchise Disclosure Document at least 14 calendar days before receiving funds or entering into a contract with a franchisee.  The FTC Franchise Rule governs what information franchisors must disclose in their Franchise Disclosure Document and how those disclosures should be given to franchisee prospects.  The FTC does not require registration at the federal level.

Some states also have laws that govern the offer and sale of franchises in those states.  These states’ laws may require registration, have different disclosure periods, require additional disclosures, or have other laws governing the franchise relationship.  You can find specific state franchise law resources here.