Registration History

Starting with California in 1973, states first became involved in franchising because of the many complaints of fraudulent franchise practices they received from investors, especially from 'fly by night' companies that had no proven product or system. Some states designed a franchise rule in which franchisors would not be allowed to offer franchise opportunities without first being registered in their state. These states provide franchise investors critical legal rights, including the right to bring private lawsuits for violation of state disclosure rules.

Franchise attorney Peter Lagarias of the Bay Area-based law firm Lagarias & Boulter, LLC describes the franchising problems that gave California pressure to regulate in 1973:

“One of the major problems regarding the sale of franchises was fraudulent earnings claims. Most franchise buyers naturally wanted to know the bottom line net profit of a typical franchise unit. There was tremendous push by buyers to get that information.  Unfortunately, a number of franchise sellers provided inaccurate or false information. Some would take the buyer’s money and disappear. Other concerns included lack of information and knowledge about the franchise agreement and relationship.”

“California started franchise legislation in the early 1970s. The state, and others, borrowed their franchise rules from what are called the securities “blue sky laws.” These statutes emanated from the federal securities law that the SEC administers. That is why these franchise statutes and rules are typically administered by, for example, California’s Department of Corporations or securities offices of the various registration states. The federal franchise regulation which followed in the late 1970s is enforced by the Federal Trade Commission.”

The U.S. government followed in 1979 with the Federal Trade Commission's Franchise Rule that requires franchisors to provide a disclosure document to all prospective franchisees, but does not require franchise offers to be registered with the FTC. Nor does it provide the right of private lawsuits for a violation of disclosure rules.

Almost three decades later, the FTC updated the federal franchise rule and its disclosure requirements. On July 1, 2008, the Uniform Franchise Offering Circular is replaced by an updated Franchise Disclosure Document that the new Franchise Rule mandates.

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Related readings:

• Franchise Disclosure Document (Uniform Franchise Offering Circular) - Franchise Encyclopedia Entry
• Federal Trade Commission's Webpage on State Offices Administering Franchise Disclosure Laws
• Franchise Regulation - Franchise Encyclopedia Entry
• Blue Sky Laws - Wikipedia