FRANCHISING IN MARYLAND
Registration or Filing Required?
Yes (Registration)
Business Opportunity Laws?
Yes
Maryland is a franchise registration state. You must register your FDD with the Securities Division of the Maryland Attorney General’s Office prior to offering or selling franchises in Maryland or to a Maryland resident. Maryland charges a $500 fee for the initial registration application and a $250 fee for renewal applications, which must be done annually. Maryland requires franchisors to submit their renewal materials at least 15 days before the anniversary of their registration date.
The Maryland Franchise Registration and Disclosure Law has a broad geographical reach and requires registration when, (i) either the franchisor or the franchisee is a resident of Maryland, (ii) the business will be operated in Maryland, or (iii) where the offer to sell is made, directed to, or accepted in Maryland. While the law is difficult to navigate, the Maryland Attorney General’s Office has provided useful information on both registering and renewing your franchise registration.
To register your franchise in Maryland, you must submit the required documents to the Securities Division, Office of the Attorney General and pay an application fee of $500. Maryland is one of the registration states that reviews franchise registration applications, so the time between submitting an application and obtaining registration can vary based on the completeness of the application, and whether the state requires any changes to be made to the FDD. Once the examiner accepts your FDD, you will receive an email advising you of your registration date. Maryland is commonly known to be one of the more difficult states to get registered in.
If you make any material changes to your FDD during your registration period in Maryland, you must promptly file an amendment to your registration with the Securities Division and pay the $100 amendment fee. Maryland provides some examples of material changes, which includes:
- Terminating 10% of your franchised business in Maryland or 5% of all franchised businesses regardless of location, within any 3-month period.
- Any change in control of the franchisor, corporate name, or state of incorporation.
- Any reorganization of the franchisor.
- Introducing a new product or service requiring additional investment by the franchisees.
- Discontinuing or modifying a current product or service which accounts for at least 20% of franchisee gross sales.
After reviewing the financial statements contained in your FDD, a state examiner may require you to agree to one of the following financial assurance requirements in order to register your FDD: (i) deferring the initial franchise fee until your franchisee has opened for business; (ii) escrowing your initial franchise fees; or (iii) posting a bond.
Maryland also requires that all advertisements directed at Maryland or its residents be filed with the state prior to their use.
Maryland offers some exemptions to its franchise registration requirement including:
- Out-of-state sales, in which: (i) the franchisee is not a Maryland resident; (ii) the franchised business will not to be operated, wholly or partially, in Maryland; (iii) the sale does not violate any law of the foreign state, territory, or country of which the franchisor or franchisee is a resident; and (iv) the sale does not violate the antifraud provisions of the Maryland Franchise Law.
- Nominal franchise fee sales, in which the franchise fee does not exceed $100.
- Sales made by “seasoned franchisors”, which the code defines as either having a net equity of $10,000,000 or $1,000,000 while being at least 80% owned by an entity with a net equity of $10,000,000 and has had at least 25 franchisees operating the same franchised business during the past 5 years.
- Sales to sophisticated franchisees where the initial investment made by the franchisee is more than $750,000.
- Sales to institutional franchisees such as banks, loan associations, trust companies, insurance companies, investment companies or other financial institutions.
We can assist you in registering or seeking an exemption in Maryland.