What You Need to Know About Franchising
Thinking about offering franchises in New York? Or maybe buying an existing franchise? It’s a great place to do so. With an economic output the size of Canada, New York attracts those looking to achieve the American dream—business ownership—everywhere from the Big Apple to Buffalo…and every city and town in between.
It’s important to educate yourself before selling franchises or buying a new or existing franchise in New York, so that you know what’s expected of you and what legal requirements and protections exist for both parties.
Prospective franchisors must submit an initial franchise registration application which includes a registration fee of $750 payable to The New York State Department of Law, a Franchisor’s Cost and Source of Funds form, a Consent to Service of Process form, a Sales Agent Disclosure form, and a Franchise Disclosure Document.
New York Franchise Filing Fees
$750
Initial
$150
Renewal*
$0
Pre-Effective Amendment**
$150
Post-Effective Amendment**
*Renewal filings must be submitted within 120 days after your fiscal year end or New York may require the filing be resubmitted as a new initial filing with payment of the initial fee.
**Post-Effective Amendment filings must be submitted if you are making a material change to your FDD after your initial or renewal filing is approved. Pre-Effective Amendment filings are submitted if you are making a material change to your FDD but your initial filing or renewal filing is not yet approved. No further sales may be made in New York until the amended FDD is approved and the registration is effectively amended.
Notes
New York recently began accepting filings via email as long as the paper copies of all the documents submitted are also sent to their offices. The filings fees are paid via check made payable to “New York State Department of Law”.
New York requires audited financials for every initial and renewal filing.
No deals may be closed in New York until the initial, renewal, or amendment filing is approved, and all New York prospects must be disclosed/redisclosed with the approved FDD. In limited circumstances you may be able to disclose a New York prospect while a renewal or amendment is pending – please contact your Spadea legal team for further direction.
If you are a New York-based franchisor, you cannot sell anywhere until New York has approved your initial, renewal or amendment filing.
Advertising – Any advertising that will be used by you to target prospects in New York, or will be published and used only in New York, must be filed with the state at least seven days prior to its first use. If we do not receive a comment or response from the state on the filing in those seven days, you are free to use the advertising. We must file an Advertising Certification form, which we will provide to you for completion, with the advertising to certify there are “no statements inconsistent with the registration application” (the current one on file with the state) contained in the advertising. All advertising must contain the following disclaimer language before we submit it to the state for review:
This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.
All franchise sales agents are required to register with the state by filing a Sales Agent Disclosure Form.
Financial Assurance – In general, New York does not impose financial assurance conditions, but will instead require special Risks be added to your FDD if they find your financials to be insufficient. The state does, however, have the right to require financial assurance in the form of escrow, or may allow the posting of a surety bond, in cases where you may have “failed to make adequate financial arrangements to fulfill” your obligations to your franchisees.
New York recently began accepting filings via email as long as the paper copies of all the documents submitted are also sent to their offices. The filings fees are paid via check made payable to “New York State Department of Law”.
New York requires audited financials for every initial and renewal filing.
No deals may be closed in New York until the initial, renewal, or amendment filing is approved, and all New York prospects must be disclosed/redisclosed with the approved FDD. In limited circumstances you may be able to disclose a New York prospect while a renewal or amendment is pending – please contact your Spadea legal team for further direction.
If you are a New York-based franchisor, you cannot sell anywhere until New York has approved your initial, renewal or amendment filing.
Advertising – Any advertising that will be used by you to target prospects in New York, or will be published and used only in New York, must be filed with the state at least seven days prior to its first use. If we do not receive a comment or response from the state on the filing in those seven days, you are free to use the advertising. We must file an Advertising Certification form, which we will provide to you for completion, with the advertising to certify there are “no statements inconsistent with the registration application” (the current one on file with the state) contained in the advertising. All advertising must contain the following disclaimer language before we submit it to the state for review:
This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.
All franchise sales agents are required to register with the state by filing a Sales Agent Disclosure Form.
Financial Assurance – In general, New York does not impose financial assurance conditions, but will instead require special Risks be added to your FDD if they find your financials to be insufficient. The state does, however, have the right to require financial assurance in the form of escrow, or may allow the posting of a surety bond, in cases where you may have “failed to make adequate financial arrangements to fulfill” your obligations to your franchisees.
There are 30,285 franchises in New York.
The 2,078 donut franchises in New York
make up 10.4% of total franchised units.
New York Franchise Exemptions
Flat Fee Program for Franchisors
Spadea Lignana’s CORE program for franchisors is a cost-effective and practical solution for the ongoing legal needs of franchisors, including but not limited to, FDD updates, state registrations and franchise agreement executions. Through a proprietary cloud-based system we can effectively and efficiently manage FDD Disclosures and Franchise Agreement executions for fair flat fees billed monthly. We believe that hourly billing, although necessary in certain circumstances like complex M&A deals and litigation, can weigh on the relationship between client and attorney. By coming up with a fair flat monthly fee, the uncomfortable negotiating of whether or not a 6 minute increment in your bill for replying to an email was legitimate goes away.
Attorneys Who Understand NY Franchise Law
Franchise laws vary from state to state, and it can be difficult to understand the requirements. Spadea Lignana has streamlined the process to ensure you remain compliant as you grow nationally.
Our corporate office is located in Philadelphia, and we have a satellite office in Melville, NY, making it easy for both New York-based franchisees and franchisors to meet with us.
We also work with franchise systems across the country, including Pennsylvania, New Jersey, New Hampshire, Vermont, Massachusetts, and Connecticut.
