Franchising & Distribution Law Blog


Blog Editors



“What are the odds?” Don’t gamble against compliance with franchise sales regulations
By Paul Woody on December 5, 2022 at 2:00 PM

One of the frequent services my colleagues and I provide to franchisors is franchise sales compliance training. It is often an eye-opening experience for new franchisors, and even experienced franchisors can find it to be a stark reminder of how heavily regulated the business of selling franchises is.

The reward, of course, can be great. Brands see franchising as an investment that will provide increased brand awareness, market share and revenue in return. However, it is important to do it right from the start.

In most parts of the United States, there are no state laws or state officials regulating franchise sales. In those jurisdictions, the sole regulatory body is the Federal Trade Commission (FTC).

Sometimes franchisor representatives will ask me, “Paul, what are the odds that the FTC would come after us if we say or do the wrong thing?” It’s a fair question. These clients don’t want to disregard the regulations, but entrepreneurs are used to weighing risks.

Nowadays, the odds are changing.  

I recently had the honor of presenting to franchise counsel from around the world at the American Bar Association’s Forum on Franchising Annual Meeting. One of my co-presenters was a director with the FTC. I want to share a quote from her that struck me: “Franchising is a priority for the Commission right now.” She went on to say that the FTC has made a “renewed commitment, across the agency, to protecting franchisees from illegal practices.”

The scope of business activities the FTC regulates is broad. However, as that quote makes evident, the FTC has chosen to focus on what it sees as protecting franchisees from franchisors who do not comply with franchise sales regulations.

And the FTC is making it easier for franchisees to alert the FTC to potential problems. Per my co-presenter, the FTC has simplified the process of filing a complaint with the commission. Franchisees can now report their franchisor by just clicking a button on the FTC’s fraud reporting website.

The FTC’s Franchise Rule has not changed. It is no harder now to franchise your brand than it was five or 10 years ago. However, this is not a time to ignore your brand’s compliance obligations.

Whether your brand has made the conscious decision to use the franchise model as its growth engine, use a distribution network to get products to consumers, or license others to sell under its name and concept, you need to bring experienced franchise counsel onto your team. Ignorance of franchise regulations will not help you if the FTC, or a state regulator, starts asking questions. The best way to protect your brand and your investment is to know the law and follow it.

Facebook Twitter LinkedIn Google+ Email

This website uses cookies to improve functionality and performance. If you choose to continue browsing this website, you consent to the use of cookies. Read our Privacy Policy here for details.