With the COVID-19 pandemic affecting the performance of many businesses in 2020, franchisors are faced with a whole new set of considerations when preparing their 2021 franchise disclosure documents, including whether to include financial performance representations from 2020.
Dawn Johnson, Beata Krakus, Susan Meyer, Abby Risner, and Leonard Vines recently attended two virtual franchise programs – the International Franchise Association Annual Convention and the American Bar Association Forum on Franchising.
Although the full impact of COVID-19 remains unknown, many franchisors are looking to the future and new opportunities for franchise sales. Some franchises may be dramatically affected, either temporarily or permanently, and may have to significantly alter their business model to remain profitable. Others might actually benefit from the pandemic.
This post was updated on April 8, 2020.
In recent days, several U.S. states have announced accommodations for franchise filings.
California announced an extension of time for calendar year franchisors to file their 2020 renewals from April 20 to June 20 in light of the COVID-19 pandemic. Although the renewal filing fee of $475 remains in effect if the renewal is filed by June 20, those who do not file by April 20 must suspend sales until approved. Filers are urged to file electronically and can sign their application forms using an e-sign software program, such as DocuSign, instead of getting their signatures notarized. Those who file by hard copy are asked to waive the automatic effectiveness, and their filing will not be effective until the actual date designated by order.
A new publication from Greensfelder’s Business Services practice group regarding Economic Injury Disaster Loans (EIDL) may be relevant to many franchise systems. The purpose of the EIDL program is to provide economic support to small businesses in order to continue operations during the COVID-19 pandemic. The procedure and terms of the EIDLs are determined on a case-by-case basis, but the article linked below provides a high-level summary of the programs, eligibility criteria and application process.
On March 18, 2020, the State Corporation Commission of Virginia extended current franchise registrations and exemptions under the Virginia Retail Franchising Act that would have expired between March 16, 2020, and April 6, 2020, by 21 days. The order indicates that if the COVID-19 emergency continues, one or more additional extensions may be granted by order.
March and April mean franchise registration renewal season for franchisors. Updating the franchise disclosure document (FDD) in a timely fashion is often a major challenge. COVID-19 has thrown much of the world, including franchisors, into a new, very uncertain reality. People and businesses are scrambling to respond and adapt. Yet, March and April remain the annual franchise registration renewal season with deadlines set by statute.