Posted by Alissa Verson
It will soon be that time of year when we will be working with our franchisor clients to prepare the required year-end updates to their Franchise Disclosure Document and file state registration renewal applications. The FTC Rule requires that all franchisors update their FDDs within 120 days of their fiscal year end, which for most of our clients in December 31. What should franchisors be doing?
1. Promptly following the year end, contact your auditor to get the audit process started and gather all information that your auditor will need. Getting the audit done in advance of the update deadlines means avoiding having to stop selling franchises if your new FDD can’t be issued because year-end audited financial statements are not yet available.
2. In addition to the 120 day deadline under federal franchise law, know your state filing deadlines as your FDD may have to be completed earlier than the 120th day following the fiscal year end in order to meet a state filing deadline and to avoid losing a state franchise registration. While some states also require that the FDD be updated and a renewal application be filed within 120 days of the fiscal year end, some states have shorter deadlines (such as Hawaii which has a deadline of 90 days from the fiscal year end and California which has a deadline of 110 days from the fiscal year end) or have renewal dates of one year from the previous registration date.
3. File state registration renewal applications early, if at all possible. Since most franchisors have a fiscal year end of December 31, state franchise regulators are swamped by April with franchisor renewal applications. In order to get quicker turnaround time on state approvals of the renewal applications, which can ease the transition process of disclosing pending prospects during the FDD update period, the earlier you can file the renewal application the better. Franchisor attorneys are also swamped as the 120 day deadline gets closer and closer, so it is wise for franchisors to start the process early with their attorneys as well.
As franchisors prepare for the annual FDD update and state renewal process, they should not view the updating requirements under franchise law as merely an administrative process of updating state registrations, but view it as a time to confirm that all FDD disclosures are accurate and complete and that all material changes since the last filing are reflected in the updated FDD. This is also an opportune time to implement franchise program changes that require new or amended disclosures in the Franchise Disclosure Document.
Contact the attorneys at Huck Bouma for assistance in updating your franchise legal documents or renewing your state franchise registrations in 2024.