The offer and sale of franchises in Virginia are governed by the Virginia Retail Franchising Act as well as Federal Trade Commission regulations. One primary goal of these laws is to protect prospective franchisees from practices deemed unscrupulous or unfair.
Franchisors must also take care in protecting their interests in franchise transactions. Many franchisors find it beneficial to consult a franchise lawyer for assistance in complying with Virginia franchise law and registration requirements. By bringing a dedicated attorney into your franchising process, you could be better informed about legal requirements and better prepared to meet those requirements, leaving you with the freedom to focus on expanding your brand.
Federal laws establish numerous requirements businesses must follow in order to sell franchises to franchisees. However, franchisors need to comply with various state requirements in addition to these base federal obligations.
Some states have enacted more stringent requirements than others. In Virginia, franchisors must register with the state before selling or even offering to sell a franchise unless the transaction meets the strict qualifications for exemption. Registration is valid for one year and then must be renewed in order to continue offering franchises for sale to state residents or within the state.
Virginia lawmakers enacted the Virginia Retail Franchising Act to address what were perceived as inequities in the franchise system. Provisions of the Act are intended to even the balance of power, ensuring that the franchisors deal fairly with franchisees. It is essential that new franchisors understand the implications of this act because violations may lead to severe penalties or legal conflict with franchisees.
Va. Code Ann. §13.1-559 defines a franchise as a written agreement giving a franchisee the right to sell or distribute retail services or goods pursuant to a plan prescribed by a franchisor and using the franchisor’s trademark or other identifying logo and in exchange for a franchise fee of at least $500. The Franchising Act establishes registration requirements and laws governing the relationship between franchisors and franchisees.
In Virginia, franchisor are prohibited from cancelling a franchise without “reasonable cause.” This provision in the statute also forbids franchisors from using undue influence to persuade a franchisee to give up any rights provided in the franchise agreement. These distinctions may be complex to understand, but by working with an experienced franchise attorney, it may be a lot easier to navigate these regulations successfully.
Franchisors must register a franchise with the Virginia Corporation Commission before selling or offering to sell a franchise. A franchise will be registered if:
Virginia requires an initial registration fee of $500 made payable to the “Treasurer of Virginia.” Renewals require a $250 fee while amendments must be submitted with a $100 fee.
Registrations should include a Uniform Franchise Registration Application, Franchisor’s Costs and Sources of Funds form, Uniform Consent to Service of Process, Affidavit of Compliance, Guarantee of Performance, Auditor’s consent letter, consent of accountant, promotional materials, salesman disclosure forms, and corporate acknowledgement. In addition, a clean copy of the franchise disclosure document must also be included.
Franchisors have up to 120 days after the end of their fiscal year to submit an updated FDD. A failure to submit all the necessary renewal documents and applicable fees before the deadline could lead to penalties. If a franchisor does this incorrectly, they may be forced to re-register their franchise as if it was new, paying the larger initial filing fee. Building a working relationship with a dedicated franchise law team could help franchisors prepare to meet these deadlines and ensure that their business continues to run smoothly in legal compliance.
State and federal laws enumerate many specific requirements for the franchise disclosure document. Along with the other required documentation, the disclosure document must be provided to the
Division of Securities and Retail Franchising
P.O. Box 1197,
Richmond, VA 23218
Prospective franchisees must also receive a copy of the FDD. Franchisors are advised to work with an experienced legal counselor or take other steps to ensure compliance with all applicable federal and Virginia franchise laws and registration provisions. Schedule a consultation today to work on expanding your business.