Late 2016 Regulatory Update – E-Filing and Risk Factors

Late 2016 Regulatory Update – E-Filing and Risk Factors

As we approach the end of the year, it’s time to start preparing for 2017 FDD updates and the submission of state registration applications.  Every year, the franchise registration states make substantive and procedural changes that affect this process, and franchisors and franchise attorneys that stay on top of these changes are better positioned to minimize the time that it takes to get registered.

In a previous blog post, we touched upon a major development, namely the increase in e-filing.  As we noted in that blog post, Wisconsin now only accepts electronic filing of franchise registration applications. Additionally, the following states have added an option for franchisors to electronically submit their franchise filings: California, Minnesota, Rhode Island, Utah, and Washington.  Here are the websites where franchisors can electronically file their franchise applications in each of these states after creating an account and ensuring that they have the proper documents ready to submit:



Rhode Island





In addition to e-filing, the North American Securities Administrators Association (NASAA), an organization of administrators that regulates the state registration process, has formed a sub-committee to address an increasingly problematic area of the FDD – the State Cover Page risk factors.  The State Cover Page is generally the second or third page of the FDD, and it includes a number of risk factors that franchisors are required to disclose to franchisee prospects.

The first few risk factors are universally required, and include statements that a franchise agreement contains choice of law and venue requirements that may force a franchisee to settle disputes outside of the state where their business is located.  Another common risk factor warns franchisees if they will be required to sign a personal guaranty, which will put their personal assets at risk. After these standard risk factors, some of the stricter registration states (such as California, Maryland, New York, and Virginia) will often require franchisors to insert additional disclosures.  These state-specific risk factors cover topics such as the franchisor’s financial strength, the franchisor’s limited operating history, or an unregistered principal trademark.

In recent years, franchisors that try to maintain a uniform FDD for use in all states where they are registered have run into problems with a registration state objecting to a risk factor required by another registration state.  Additionally, different registration states will occasionally require similar (though not identical) risk factors that lead to redundant and often confusing disclosures.  In an effort to address these problems, the NASAA sub-committee is working to promote uniformity among the registration states by creating standardized risk factors that will be accepted by all of the states.  While individual examiners will still have the authority to override the uniform risk factors, any progress in this area will streamline the registration process and help franchisors maintain a single FDD that they can use across the country.