Franchise Registration States Attempt To Accommodate An Industry Impacted By Coronavirus

As the COVID-19 pandemic has put businesses in unprecedented situations, companies are forced to adapt and modify their operations. In response to this monumental disruption to business, a several states have already begun releasing updated guidelines for franchise registrations and renewals in the hopes to mitigate the impact that this pandemic has had on franchisors.  These new policies include the pushback of some deadlines and changes to the form of application submissions to the state. Below we have listed the new policies put into effect as of March 25, 2020:

Maryland

Process Changes: Registration applications are to be filed solely on CD-ROM, removing the requirement of paper copies to be provided. This CD-ROM should be submitted with a paper cover letter or application page, and a physical check made out to “Office of the Attorney General.”

Registration and Disclosure Changes: Effective immediately, the Maryland Securities Commissioner has granted an automatic extension of the effective dates of franchise registration and exemptions that would have expired during this state of emergency. During this state, franchisors can continue to offer (but not sell) franchises under certain conditions. The franchisor must provide an updated Franchise Disclosure Document compliant with the FTC Franchise Rule to prospective Maryland offerees. These updates only apply to franchises filed in the state of Maryland.

Virginia

Process Changes: The Virginia Division of Securities and Retail Franchising will no longer be requiring application submissions to be made with paper copies. Franchises may submit their Franchise Disclosure Document and application on a CD or USB along with a paper copy of the Form A application and a physical check to cover the application fees.

Registration and Disclosure Changes: The Supreme Court of Virginia released a “Judicial Emergency Declaration” which has granted extensions on upcoming registration and exemption deadlines. They have announced a Judicial Emergency Declaration that states that any franchise registered or exempted by the Virginia Retail Franchising Act has now been granted an extension of 21 days for their registration or exemption (“or such other time period as may be subsequently ordered by the SCC or the Supreme Court of Virginia”).

California

Process Changes: California will allow businesses to use DocuSign in lieu of physical signatures if filings are electronic. The Department of Business Oversight will temporarily waive late fees.

In addition, the International Franchise Association has advised its Legal Legislative Committee of the following pending considerations:

Indiana

The state of Indiana is reviewing their deadlines and stated they were considering a delay.

Rhode Island

The state expects that they will release more information on their website.

South Dakota, North Dakota and Washington may work with franchisors on a case by case basis. The IFA advises that New York is looking at changes.

Although the registration states are providing limited relief, registration and disclosure rules, including the FTC Franchise Rule still apply. Thus, franchisors with fiscal years that ended on December 31, 2019, will need to update their disclosure documents within 120 days following the end of the its fiscal year. Franchisors should update their franchise disclosure documents (including changes necessitated by the current Coronavirus pandemic) and renew / apply for franchise registrations consistent with their past practices. As required by law and further heightened by the Coronavirus pandemic, franchisors should also plan to re-visit their disclosures, including Items 19, 20 and 21, quarterly or more frequently during the next year and amend the disclosure document as necessary. 

Finally, all franchisors should recognize that they may continue to offer or sell franchises if the transactions are not covered by, or exempt from, the franchise registration and disclosure laws.

Allison David, legal clerk, contributed to this post.