The franchise industry is regulated by both federal and state laws. The Federal Trade Commission requires all franchises to be in compliance with the Franchise Rule, which mandates disclosure documents to be provided to prospective purchasers. Some states require these documents to be on file.
In other states, if a franchise is in substantial compliance with the Federal Trade Commission it will be exempt from registration, however, the franchise might be required to file an exemption form. In states where filing or registration is required, the franchise must be in compliance with the state law before selling a franchise in the state. Other states only require that disclosure documents are provided to the purchaser at a designated time period before the final sale.
Documents included in state applications vary. Some states might require the franchisor to include the following; Uniform Franchise Registration Application, Supplemental Information Form, Franchise Broker Disclosure Form, Uniform Consent to Service of Process, Corporate Acknowledgment and Certification Page, Advertising materials, the FDD Franchise Disclosure Document, and a Surety Bond.
Businesses functioning without the proper license are generally penalized based on the size of the operation and the gravity of the offense.