Michigan franchise laws require potential franchisors to register their offering and fulfill several other requirements before they are able to legally sell the franchise opportunity. Sometimes, businesses that license proprietary elements to other companies may have unintentionally set themselves up as franchisors and are therefore required to comply with registration requirements.
It may be beneficial to consult an experienced franchise lawyer to learn whether your business will be affected by franchise legislation in Michigan and to ensure legal obligations are met. Michigan franchise law and registration requirements can be complicated and are also subject to change as regulations and legal interpretations evolve.
While most people recognize certain restaurant chains, hotels, and other businesses as franchises, they do not realize that many smaller businesses are also conducted on a franchise basis. Mich. Comp. Laws §445.1502 defines a “franchise” as a:
If a franchisor grants someone the right to sell franchises on their behalf, that seller becomes known as a subfranchisor under Michigan law, and the right to sell franchises is referred to as an “area franchise.” Subfranchisors are treated as franchisors for many regulatory purposes.
A franchisor must register with the Franchise Section of the Michigan Department of the Attorney General before offering to sell any franchises in the state. The government refers to this registration as a “Notice of Intent.”
Franchisors must submit this Notice typed on franchise letterhead with a specific format. Information required includes the franchisor’s company name, business name, and the principal business address. A description of the type of business is also recommended.
The Notice should be accompanied by a check for $250 made out to the “State of Michigan.” Franchisors may send or deliver franchise registration materials to the Franchise Section, Office of the Attorney General, G. Mennen Williams Building, 525 W. Ottawa Street, Lansing, MI 48909. The fee for notice renewal is the same as registration and should be paid annually in conjunction with a resubmission of the relevant paperwork.
Unlike the laws in many states with franchise registration requirements, Michigan does not review franchise disclosure documents to determine whether these documents comply with federal and state requirements. However, the state does expect franchisors to comply with those requirements.
Moreover, franchisors must provide a copy of the franchise disclosure documents to prospective franchisees at least ten business days before executing a contract for a franchise or receiving any consideration for a franchise. Michigan laws lay out that the disclosure statement should contain the information in the Notice of Intent as well as the name and address of an agent authorized to receive service of process, information about the business structure of the franchisor as well as the business experience of those affiliated with the franchisor.
The disclosure must also contain criminal background information, a recent financial statement, a copy of the franchise contract, information about franchise fees and renewal or termination terms. Franchise disclosure documents are intended to provide enough information to franchisees to enable them to make an informed decision before investing.
Failure to file the required Notice of Intent can result in a fine of up to $100 per day for each day of non-compliance. Moreover, mistakes that could be interpreted as fraudulent practices might also subject a franchisor to civil liability.
Michigan franchise law and registration also requires compliance with operating laws and contract requirements regarding the communication of offers or acceptances of franchise agreements. Guidance from a franchise attorney may help you prepare to franchise your business successfully and legally. Call today to get started.