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European and US Law: Franchising

In the US franchise offerings are subject to very specific federal and state laws pertaining to the sale of investments. These rules already apply in the earliest stage of offering a franchise opportunity to potential franchisees. Under federal rules a franchise prospectus is considered a solicitation to buy a financial product. From that perspective it needs to comply with virtually just as many rules as for instance a stock or bond offering does. Several states maintain their own franchise registration and filing requirements. Plans and advertisements for franchise opportunities must usually be approved by the state franchise examiner. If a state examiner requires that changes are to be made to the franchise plan these changes trigger renewed filing requirements with the Federal Trade Commission (FTC), as well as with other states. In short, consulting a specialized franchise attorney before setting one word on paper is not a luxury.a luxury.

A few states merely require an annual filing. Even there, that state’s general business opportunity laws apply. These can impose requirements that are similar to the conditions set forth in the specific franchise laws of other states.

In Europe the situation is less complex, even though each country has its own rules and regulations. Not many are particularly aimed at franchising. In Italy, no specific franchise law exists, however franchises are subject to laws pertaining to supply contracts. Similarly, in Belgium laws that seem to apply to franchising are in effect laws on commercial cooperation in any form. Most importantly, national laws are not related to those of other countries. Changes made to a franchise plan for one country do not trigger (re)filing requirements in another country.

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