Anyone intending to sell or offer a franchise opportunity in the state of Maryland must comply with state and federal regulatory requirements, including registration requirements. Part of this obligation includes the preparation of a franchise disclosure document (FDD) that complies with the franchise registration and disclosure guidelines devised by the North America Securities Administrators Association.
The Securities Division of the Maryland Office of the Attorney General manages franchise registration and enforces the franchise laws in Maryland. Because the requirements are complex, franchisors often choose to work with an experienced franchise lawyer when preparing documentation, registering and renewing with the state, demonstrating qualifications for an exemption, or other franchisor-specific matters.
The sale of a franchise is generally complex, so Maryland’s franchise laws and registration requirements have just as many facets. Md. Code, Bus. Reg. Law §14-201 defines many of the terms involved, laying the groundwork for all the state franchise laws. A franchise is a sales agreement to give the right to sell or distribute goods and services via a proprietary system and brand in exchange for a franchise fee of some manner.
Maryland law allows for sub-franchising using “area” franchises. An area franchise is a contract in which the franchisor grants a sub-franchisor the right to sell franchises in the franchisor’s name. Many of the Maryland franchise laws are designed to ensure that those who purchase franchises have sufficient information about the arrangement they are entering to allow an informed purchase decision. Franchisors are required to provide this information in the documents they submit to fulfill registration requirements. Maryland is known as one of the most difficult states to obtain franchise registration in.
Franchisors must submit several documents when applying for franchise registration. This information must also be presented annually as part of the renewal process at least fifteen business days before the one-year anniversary of the effective date of the registration.
Documents to be submitted to comply with Maryland franchise law and registration include:
In some cases, a Guarantee of Performance of the parent or affiliate may also be required. These documents should be submitted to the Securities Division along with a $500 check for the application fee made out to the Office of the Attorney General. Registration should be sent to the Securities Division, Office of the Attorney General, 200 St. Paul Place, 20th Floor, Baltimore, MD 21202.
If filing a renewal, the fee is $250 and if filing an amendment registration application, the fee is $100. If a renewal is not correctly completed and filed according to the regulations within the state’s given time frame, the franchise may need to be re-registered from the beginning of the process. This means that franchisors may also need to pay the higher initial filing fee instead of the discounted renewal fee.
In some cases, Maryland lawmakers have determined that it is not necessary or appropriate to require compliance with the registration requirements to protect the interests of investors. Many transactions are exempted because the size and experience of the franchisor or franchisee do not appear to necessitate this type of disclosure. Others may be exempt because the franchise fee is very low or the business will not operate in Maryland. Franchisors must file a notice of exemption in many cases to use these exemption provisions.
Maryland statutes and regulations governing franchises are subject to frequent amendments as well as changes in interpretation. To ensure compliance, many franchisors find it beneficial to consult an attorney who understands the complexities of Maryland franchise law and registration.
Franchisors have many obligations in addition to registration. They must provide prospective franchisees a copy of the FDD to review at least 14 days before formally entering into a franchise agreement. Franchisors must also submit copies of advertising to the Securities Division at least five days before advertising the sale of franchises and must make quarterly reports. For help building your franchise network, get in touch with a dedicated franchise legal team to start work today.