Compliance for U.S. franchise owners

Compliance Essentials for U.S. Franchise OwnersOperating a franchise in the U.S. requires navigating a complex landscape of federal and state regulations. Understanding these rules is paramount to protecting your investment, preserving your brand, and avoiding potential penalties.Key Compliance Areas:Federal Baseline (FTC Franchise Rule): Franchisors must provide a Franchise Disclosure Document (FDD) with 23 specific items to prospective franchisees at least 14 days before signing or payment. Financial Performance Representations (FPRs) must be exclusively in FDD Item 19.State Overlay: Many states are 'registration states' (e.g., CA, NY, IL, MN, MI, VA, WA, RI, ND, WI, IN, HI, MD) requiring FDD registration and review. Others require filings or notices. States also have 'relationship laws' governing post-sale conduct like termination and renewal, offering franchisees further protections.Operational Compliance: Beyond franchise-specific laws, owners must comply with general business regulations including business formation, federal & state taxes (income, payroll, sales & use), employment laws (wage/hour, classification, I-9), workplace safety (OSHA), ADA obligations, local permits, trademark/licensing rules, and marketing laws (TCPA, CAN-SPAM). Be aware of joint-employer exposure risks.Actionable Compliance Checklist Highlights:1. FDD Review: Carefully read and verify the FDD, paying attention to Item 19 (FPRs) and Item 21 (audited financials). Ensure the 14-day waiting period.2. State Requirements: Confirm state-specific registration, filing, and relationship laws before operating or selling.3. Corporate & Tax Compliance: Properly form your business entity, register for all necessary federal and state taxes, and retain an experienced accountant.4. Employment & HR: Ensure compliance with wage/hour laws, proper employee classification, and workers’ compensation to mitigate joint-employer risks.5. Safety, Health & ADA: Obtain local permits, meet safety standards, and ensure ADA accessibility.6. IP & Marketing: Adhere to franchisor trademark rules and marketing regulations.7. Documentation & Advisors: Maintain comprehensive compliance records and seek professional advice from franchise counsel, CPAs, and HR counsel.Common Risks to Avoid:Watch out for late FDD delivery, FPRs outside Item 19, failing to register in required states, payroll/sales tax errors, and joint employer liability.Resources:Refer to the FTC Franchise Rule, eCFR (16 CFR Part 436), and SBA guidance for detailed information. Professional advisors are highly recommended.