FRANCHISING IN MICHIGAN
Registration or Filing Required?
Yes (Registration)
Business Opportunity Laws?
Yes
Michigan is a franchise registration state but a little different than the others. Michigan is actually a “notice” state and does not review a franchisor’s FDD. Michigan charges a $250 fee for registration, which must be submitted annually and prior to any sales in Michigan.
The Michigan’s Franchise Investment Law defines a franchise as a contract or agreement (express or implied, oral or written) between 2 or more persons in which:
- A franchisee is granted the right to sell or distribute goods or services under a marketing plan or system prescribed in substantial part by a franchisor;
- A franchisee is granted the right to sell or distribute goods or services associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol; and
- The franchisee is required to pay a franchise fee.
Franchisors are required to register in Michigan when the franchise offer is made in, directed to, or accepted in the state. Additionally, franchisors must register if both the franchisee is a resident of the state and the franchised business will be operated in the state. Failure to comply with Michigan’s registration rules may result in a civil penalty or other remedies available to the State of Michigan.
Michigan does not have a “renewal” filing process, so franchisors must complete the notice filing requirement annually. Your franchise will be registered when you receive confirmation of your filing from the Department of the Attorney General.
Michigan’s Franchise Investment Law does provide additional regulations governing the franchise relationship. Michigan requires certain disclosure be made in the FDD and the FDDs to be furnished 10 business days before the execution of a franchise agreement or payment of franchise fees. Additionally, franchisors that have unaudited financial statements and a net worth of less than $100,000 must escrow initial fees or post a surety bond upon request of a franchisee. Michigan’s Franchise Investment Law also imposes the following restrictions on the franchise agreement:
- Prohibits restricting a franchisee’s ability to join an association of franchisees
- Prohibits requiring franchisees to consent to a release or waiver of claims
- Requires franchisors to have good cause to terminate the franchise agreement, and allow the franchisee 30 days to cure
- Requires franchisor to fairly compensate franchisee for the fair market value of the franchisee’s inventory, supplies, equipment, fixtures and furnishings, if the franchisor refuses to renew the franchise agreement (only applies if the term is less than 5 years and non-compete provisions are enforced)
- Prohibits franchisor from including terms that allow it to renew the agreement on substantially different terms than those presented to other franchisees
- Prohibits requiring arbitration or litigation to be done outside of Michigan
- Requires franchisors to have good cause to stop franchisee from transferring its interest in the franchise agreement
- Prohibits provisions that require the franchisee to resell goods to the franchisor that are not uniquely identified with the franchisor
- Prohibits provisions that allow the franchisor to directly or indirectly assign its obligations to fulfill contractual obligations (unless provision is necessary for providing required services)
Compliance is key here. Michigan’s Department of the Attorney General governing franchising in the State of Michigan will levy substantial fines and has the power to seek criminal charges for non-compliance. We can assist you in staying compliant in Michigan.