An Interview with Susan Kezios on Skirting Franchise Registration

Internet Plays Role in Stalling Registration

Blue MauMau interviews Susan Kezios, president of the American Franchisee Association, a national trade association of franchisees that works to protect franchisees' economic investments. We wanted her thoughts on how widespread the problem might be of franchisors avoiding or flaunting registration laws.

Blue MauMau: How big a problem is new franchisors avoiding registration and the filing of disclosure documents?

Kezios: It is common knowledge that many, if not the majority, of start-up franchisors first begin selling franchises in non-registration states. They have done that since the beginning of time for two reasons. First, to save money on filing fees with government agencies and second, because they know there is no cop on the beat to catch them when they happen to misrepresent the offering, or when they take money earlier than stipulated by law.

BMM: Marketing through the Internet can allow new franchisors to cast a pretty wide net in catching buyers from everywhere. Once a franchisor has an interested franchise candidate from a registration state, a franchise fee could help offset the cost of registration: start the process and a month later a franchisor could receive the franchise fee, right? I mean, how are such franchisors supposed to treat buyers who find them through their marketing efforts in cyberspace?

Kezios: Franchisors advertising over the Internet claiming, “Sorry, we didn’t know someone from [pick a registration state] would call” are, politely said, simply lying.

Once a franchisor’s salespeople or front-desk receptionist learns that someone from a registration state is calling / inquiring, the correct response is, “We are not registered to sell franchises in your state yet, but let me take your contact information and we will call you as soon as we are compliant with the law.”

Any franchisor doing differently pre-sale is going to behave even worse with its franchisees post-sale. This behavior continues to make the case for the American Franchisee Association’s (AFA) value in the marketplace.

BMM: Shouldn't franchisors be afraid of being caught when they solicit or offer franchises on the Internet without first filing registration?

Kezios: The FTC will probably not step in to regulate Internet solicitation scams by franchisors … in particular if they are IFA members. The FTC’s modus of operation for decades when it comes to protecting the franchise investor has always been, leave bad enough alone! I don’t see them changing that pattern any time soon.