FRANCHISING IN WASHINGTON
Registration or Filing Required?
Yes (Registration)
Business Opportunity Laws?
Yes
Washington is a franchise registration state. So, you must register your FDD with the Washington State Department of Financial Institutions Securities Division prior to offering or selling franchises in the state. Washington charges a $600 fee for the initial registration application and a $100 fee for amendment or renewal applications. Renewal applications must be done annually at least 15 days before the registration expiration.
Washington defines a franchise as an agreement in which:
- The buyer is granted the right to offer, sell, or distribute goods or services under a marketing plan prescribed by the seller;
- The operation of the business is substantially associated with a trademark or other commercial symbol designating, owned by, or licensed by the seller; and
- The buyer pays a franchise fee.
Franchises are subject to Washington’s Franchise Investment Protection Act, and must be registered whenever the franchisee is a resident of the state or the franchisee’s business will be located in the state. Additionally, you must register your franchise in Washington if an offer to sell your franchise is directed to the state or accepted in the state. Offers to sell a franchise originating in Washington are only subject to the Act if they violate franchise or business opportunity laws of the state they are directed to.
Registering in Washington is now done through their online application system. Washington generally requires audited financial statements but depending on the situation may accept phasing-in the use of audited financial statements or ones prepared in accordance with generally accepted accounting principles.
To renew your franchise registration in Washington, you must submit a renewal application in the same online portal as the initial registration. If you fail to renew your registration before your registration expiration date, you must complete a Franchise Reapplication, which has the same requirements, except that the fee is $600.
Washington does have registration exemptions, the majority of which relate to the transfer of a franchise by a franchisee. You should discuss all registration and exemptions possibilities with your franchise attorney as they are complex, and Washington has some of the active examiners.
Washington’s Franchise Investment Protection Act also has numerous provisions that impose additional obligations on the franchisor. Here are several of the actions it prohibits a franchisor from doing:
- Restricting a franchisee’s ability to participate in franchisee associations.
- Requiring a franchisee to adhere to a standard of conduct unless said standard is proven to be reasonable and necessary.
- Charging a franchisee more than a fair and reasonable price for any product or service.
- Discriminating between franchisees with respect to the fees or prices offered for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing. The franchisor may vary these terms if it can prove, the variation is reasonable, non-arbitrary, and resulted from the franchises being granted at significantly different times.
- Obtaining rebates without disclosing them to the franchisee.
- Competing with a franchisee in its exclusive territory, whether it is done directly by the franchisor or through another franchisee.
- Requiring a franchisee to consent to a release or waiver that relieves the franchisor from liabilities imposed by the Act.
- Terminating the franchise agreement without good cause (as defined by the Washington statutes).
- Refusing to renew a franchise agreement without compensating the franchisee for the fair market value of its inventory, supplies, equipment and furnishings purchased from the franchisor and its goodwill. A franchisor doesn’t have to comply with this if it has provided the franchisee with one year’s notice AND it waives its right to enforce any of the agreement’s non-compete provisions.
Additionally, all third-party brokers who sell franchises in Washinton must register with the state of Washington. If you use brokers, you should obtain their broker’s registration information.