Ohio Franchise Law and Registration

Classification: Non-registration state

Registration Fee: n/a

Renewal Fee: n/a

Registration expiration: n/a

Ohio is classified as a non-registration state because it has no laws requiring franchisors to register with the state before offering or selling their franchise. But Ohio does have laws relating to the sale or offering of business opportunities under its Business Opportunity Purchasers Protection Act, Ohio Rev. Code §§ 1334.01 et seq. (the “Business Opportunity Act”). However, with one caveat discussed below, they are largely irrelevant. This is so, because under § 1334.13, franchisors are excluded from most of the Business Opportunity Act’s requirements if they are otherwise in compliance with the Federal Trade Commission Amended Franchise Rule, 16 C.F.R. §§ 436.1 et seq. (the “FTC Rule”).

And now for the caveat: the only provisions of the Business Opportunity Act that may apply to Ohio franchisors are § 1334.03(H) and § 1334.04. These statutes are applicable only if a franchisor represents in the sale of a franchise (1) that a franchisee’s initial payment or promissory note is secured; or (2) that the franchisor provides a buy-back arrangement. Under § 1334.03(H), franchisors are prohibited from making these representations unless they first obtain a surety bond issued by a surety company authorized to business in the state, or establish and maintain a trust account in the state, for a value of $50,000 during the first six months of the franchisor’s business.

By the tenth day of the franchisor’s seventh month in business, the value of the surety bond or trust account must be adjusted to the total amount of initial payments and promissory notes received pursuant to franchise agreements entered into in the previous six months, and under which the franchisor made a representation described above. After that, the value may be adjusted semi-annually, but at no time can it be less than $10,000.

For franchisors planning to offer buy-back arrangements or secured initial payments or promissory notes as part of their franchise business, a franchise attorney is an excellent resource to assist in drafting the franchise agreement. For all other franchisors, a franchise nonetheless an excellent resource to review a franchise agreement for provisions that may amount to a representation described in § 1334.03(H), and to avoid a penalty under Business Opportunity Act for failure to comply. Whether a franchisor is subject to the Business Opportunity Act’s requirements for representations concerning buy-back arrangements and secured initial payments or promissory notes, Ohio franchisors must always comply with the requirements of the FTC Rule, which, among other things, requires franchisors to disclose a validly issued Franchise Disclosure Document (FDD) before entering into a franchise agreement or accepting payment from a franchisee.