Franchise

Franchise FDD Expiration Rules by State

Your FDD will expire at the earlier of (1) when the new FDD is issued, or (2) when you reach a state or federal expiration date.

New FDD Issuance

Once you issue your new FDD, your old FDD expires.

For example, if you are in California and you issue a new FDD on April 20, your old FDD expires everywhere. Once you issue a new FDD anywhere, you are no longer allowed to use the old FDD anywhere.

State or Federal Expiration Date

Your FDD will expire on a national level 120 days after your fiscal year end.

So, if your fiscal year end is December 31, your FDD will expire on April 30.

When your FDD expires in a certain state will depend on whether that state’s registration is tied to your fiscal year end or if it is tied the effective date of registration. Many states require that your FDD arrive in their office before the expiration date so do not plan on mailing the FDD a day or two early.

Several states’ registrations also expire 120 days after your fiscal year end: Illinois, Minnesota and New York. Hawaii and California have shorter timelines. Hawaii’s registration expires 90 days after the fiscal year end and California expires 110 days after the fiscal year end. Most franchisors do not prioritize the Hawaii deadline because the filing fee for a renewal and an initial filing (or late filing) is the same. Because of this, the California deadline generally controls the FDD update timeline.

Other states will expire 12 months after your state registration date. It is important to realize that while your registration in a state may still be effective, your FDD may not. For example, you are a franchisor with a December 31 fiscal year end. Your FDD expires on April 30. You might be registered in Maryland with an effective date of June 30, meaning your Maryland registration is still valid until the following June 30. However, if your FDD is expired, you cannot use it to offer or sell franchises in Maryland, even though you have a valid registration. This is one of the reasons it is important to update your FDD well before expiration date.

Here is a chart showing the registration or filing state’s expiration timelines:

If you have any questions, please feel free to contact us.

by Mike Drumm

Who Does California Consumer Privacy Act (CCPA) Apply To?

By introducing the California Consumer Privacy Act, California continues its pattern of enacting legislation that has the potential to impact the franchise industry in a significant way. The CCPA applies to any company that “does business” in California (which is a broad category) and that meets the criteria explained below.  If your franchise company is based in California, or (potentially) even if you have any franchisees in California, you need to be prepared to comply with this new law.

What does it mean to “do business” in California?

Because any California resident is protected by the CCPA, doing business in California does not require a company to have an office or a business operation in California.  If a California resident visits your store or website and information is collected, you might be required to comply with the CCPA.

What does the CCPA do?

The CCPA grants California residents new rights relating to access to, opting-out of the collection of, deletion of, and sharing of personal information collected by businesses about them.

What is personal information?

Personal information is defined broadly to include any information that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.”  This definition includes items such as names, IP addresses, geolocation data, biometric information, and email addresses.

Who does the CCPA apply to?

The CCPA applies to businesses that “do business” in the State of California, where the business meets one or more of the following criteria:

• Has gross annual revenues in excess of $25 million*;
• Buys, receives, or sells the personal information of 50,000 or more consumers, households, or devices; or
• Derives 50 percent or more of annual revenues from selling consumers’ personal information.

*Keep in mind that it’s not clear whether the State of California would try to aggregate all the franchisees plus the franchisor in calculating this $25 million figure, or aggregate the franchisor and its affiliate entities.  For example, if your annual revenues were $15 million, and the revenues of all of your franchisees together was another $15 million, would the CCPA apply to you and each of your franchisees? There is no guidance yet on how this figure will be calculated.

What are the new requirements?

A businesses subject to the CCPA must:

• Maintain a privacy policy that is in compliance with the California Online Privacy Protection Policy and is updated to comply with the CCPA.
• Provide notice to consumers at or before data collection.
• Create procedures to respond to requests from consumers to opt-out of collection, and to know of and delete personal information.
• Respond to requests from consumers to opt-out of collection, and to know of and delete personal information.
• Include a “Do Not Sell My Info” link on any website or mobile app.
• Verify the identity of consumers who make requests to know of and to delete personal information, whether or not the consumer maintains a password-protected account with the business.
• Disclose financial incentives offered in exchange for the retention or sale of a consumer’s personal information and explain how it calculates the value of the personal information.  A business must also explain how the incentive is permitted under the CCPA.
• Maintain records of requests and how the business responded for 24 months.

How is a franchisor or franchisee affected?

The CCPA defines a business as “a sole proprietorship, partnership, limited liability company, corporation, association, or other legal entity that is organized or operated for the profit or financial benefit of its shareholders….”  A business is further defined as one such legal entity that utilizes “common branding”, which means a shared name, servicemark, or trademark.  Franchisors and franchisees could be subjected to the CCPA if any personal information is collected from a California resident (either as a prospective franchisee of the franchisor or as a customer/client of the franchisor or a franchisee) and does not comply with the requirements of the CCPA.

What are the consequences for noncompliance?

As currently written, the CCPA subjects businesses to fines up to $2,500 for each violation and up to $7,500 for each intentional violation, if a business fails to cure an alleged violation within 30 days of notice of noncompliance from the California Attorney General.  Also, if unencrypted personal information is acquired by others and the business failed to have a reasonable security program, the business may be directly liable for the costs after a 30-day cure period.

When does the CCPA take effect?

The CCPA took effect on January 1, 2020 and final rules were approved on August 14, 2020.

Please let us know if you have any questions and how we can help.  Click here to contact us.

by Mike Drumm

Franchise Advertising by State

Franchise for sale!  Only fifty cents (well, not really but you get the idea).  You have some amazing advertising pieces to sell your franchise.  So you can just use them however and wherever you want, right?  No. This would be too simple.

Certain states require you to pre-file advertising materials and wait a specified time before using them in the state.  Some states require that you register your franchise offering before you can advertise it.

Which states require you to pre-file advertising materials?

You must submit franchise advertising before it is used in 6 states, and the advertising must be on file for 3 to 7 days to give state examiners time to review and comment:

If you don’t hear back from the state within these time frames, you can start using the advertisements in that state.  You may also want to contact the examiner to confirm that the advertising filing was received.

There is no filing fee to pre-file advertising materials.

Are there any other states with rules on advertising?

A total of 20 states require an advertising filing (i.e. registration or notice filing):

And don’t forget: every state requires that you first have a finalized FDD that complies with the FTC Rule before advertising.

Is there an exception for internet advertisements?

Did you know that Internet advertising and company websites are also considered advertising? Thankfully there are exemptions for these “advertisements.”

Internet advertisements and company websites are exempt from the pre-filing requirement if you meet certain requirements:

• You disclose the website URL on the cover page of your registered FDD or file a notice with the state within 5 days of publishing the internet advertisement, and
• The advertising is not directed to any person in the state.

In addition, California requires you to provide this information on their own form when you register or renew the FDD.

What disclaimers do I need to include on my advertisements?

Your advertising materials needs to include a disclaimer.  The disclaimer should be customized to the content of your advertisement and the states where you are using it.  Below are some example disclaimers:

General Disclaimer

“This advertisement is not an offering.  An offering can only be made by a Franchise Disclosure Document filed with the referenced state, which filing does not constitute approval. [FRANCHISE] franchises will not be sold to any resident of any such jurisdiction until the offering has been exempted from the requirements of, or duly registered in and approved by, such jurisdiction and the required Franchise Disclosure Document has been delivered to the prospective franchisee before the sale in compliance with applicable law. The following states regulate the offer and sale of franchises: CA, HI, IN, IL, MD, MI, MN, NY, ND, RI, SD, VA, WA and WI. If you reside in one of these states, you may have certain rights under applicable franchise laws.”

State-Specific Disclaimers and Franchisor Information

Some states require specific disclaimers or information to be included in advertisements as follows:

Disclaimer for Using Financial Performance Representations

“[Gross revenues/net profit/etc.] figures based on unaudited financial information as submitted by franchisees operating from [DATE] to [DATE] and as published in Item 19 of our [ISSUANCE DATE] Franchise Disclosure Document (FDD). As of [DATE] there were [NUMBER] [FRANCHISE] outlets in operation.  Some outlets have sold/earned this amount. Your individual results may differ. There is no assurance that you’ll sell/earn as much. Written substantiation for the financial performance representation will be made available to the prospective franchisee upon reasonable request. See Item 19 of our [ISSUANCE DATE] FDD for a definition of gross revenues and for further information.”

Keep in mind that if you want to include earning claims in your advertisements, you can only include figures that already appear in Item 19 of your FDD, without any alteration.

We’d recommend you always first send your advertising materials to a franchise attorney for review, even if you aren’t using them in a pre-submission state.  This helps to avoid inadvertently saying something illegal or that you’ll later regret.

Learn more about franchising here.

by Mike Drumm