What You Need to Know About Franchising
The franchise industry in Maryland is holding steady, with just over 14,000 franchise establishments in operation, employing approximately 165,000 workers. A state’s franchise track record is best suited toward its growing population, lower costs of living and business friendly environment. Good news for Maryland business, but there are some changes to keep top of mind.
State legislature implemented new minimum wage requirements effective January 1, 2020, that raised the minimum wage from $10.10/hr. to $11.00/hr. The wage will continue to rise annually until it reaches $15.00/hr. in 2025. In addition, the state is considering a privacy act much like the California Consumer Privacy Ace (CCPA), which could govern how franchisors and franchisees collect, share and use consumers’ personal information to create business opportunities. Keep on eye on local government to stay informed with further developments.
Maryland Franchise Filing Fees
$500
Initial
$250
Renewal*
$0
Pre-Effective Amendment**
$100
Post-Effective Amendment**
*Renewal filings must be submitted before the expiration date or Maryland will 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 Maryland until the amended FDD is approved and the registration is effectively amended.
Frequently Asked Questions (FAQ) for Maryland Franchisors
1. What is the initial filing fee for an FDD in Maryland?
The initial filing fee for submitting your Franchise Disclosure Document (FDD) in Maryland is $500.
2. How often do I need to renew my FDD in Maryland?
Your FDD must be renewed annually, with a renewal fee of $250. Failure to renew on time will require you to refile as a new initial filing.
3. Can I use my advertising materials in Maryland without state approval?
No, any advertising targeted at prospects in Maryland must be filed with the state at least seven days prior to its first use. If no response is received within that timeframe, you can proceed with the advertising.
4. Are there any financial reporting requirements for new franchisors?
Yes, new franchisors can initially submit unaudited financials. However, after the first year, they may be required to provide audited financial statements.
5. What happens if I want to make changes to my FDD after filing?
If you need to make material changes after your initial or renewal filing has been approved, you’ll need to submit a Post-Effective Amendment.
6. Can I sell franchises outside of Maryland before getting approval?
If you are a Maryland-based franchisor, you cannot sell franchises in any other state until your initial, renewal, or amendment filing has been approved by Maryland.
7. What are the consequences of not having adequate financial arrangements?
If the Commissioner finds that you lack adequate financial arrangements to meet your obligations to franchisees, you may be required to provide some form of financial assurance, such as an escrow account or surety bond.
8. How can I ensure compliance with Maryland franchise laws?
Working with legal experts who specialize in franchise law can help you navigate the complexities of state regulations and ensure compliance as your franchise grows.
Maryland is a registration state for franchises, which means that you must submit your FDD to a state regulator for review. In Maryland, the initial FDD registration fee is $500 and the FDD renewal fee is $250.
Notes
The preferred method for filing in Maryland is through an online portal created by the industry for registration states. The filing fees are also paid through the portal via ACH. You will be required to complete and submit an ACH authorization form to us before we will submit the filing for you. Transaction fees apply for each filing with the current rate being $100 per.
Maryland will accept unaudited financials for first-year startup franchisors, but then will impose a financial assurance. The state may also require the submission of unaudited financials to supplement the audit in certain circumstances.
No deals may be closed in Maryland until the initial, renewal or amendment filing is approved, and all Maryland prospects must be disclosed/redisclosed with the approved FDD. In limited circumstances you may be able to disclose a Maryland prospect while a renewal or amendment is pending – please contact your Spadea legal team for further direction.
If you are a Maryland-based franchisor, you cannot sell anywhere until Maryland has approved your initial, renewal or amendment filing.
Advertising – Any advertising that will be used by you to target prospects in Maryland or will be published and used only in Maryland, 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.
Financial Assurance – If the Commissioner finds you do not have adequate financial arrangements to fulfill your obligations to franchisees, the Commissioner may require some form of financial assurance be instituted, such as an escrow, deferral of initial fees, or posting of a surety bond.
The preferred method for filing in Maryland is through an online portal created by the industry for registration states. The filing fees are also paid through the portal via ACH. You will be required to complete and submit an ACH authorization form to us before we will submit the filing for you. Transaction fees apply for each filing with the current rate being $100 per.
Maryland will accept unaudited financials for first-year startup franchisors, but then will impose a financial assurance. The state may also require the submission of unaudited financials to supplement the audit in certain circumstances.
No deals may be closed in Maryland until the initial, renewal or amendment filing is approved, and all Maryland prospects must be disclosed/redisclosed with the approved FDD. In limited circumstances you may be able to disclose a Maryland prospect while a renewal or amendment is pending – please contact your Spadea legal team for further direction.
If you are a Maryland-based franchisor, you cannot sell anywhere until Maryland has approved your initial, renewal or amendment filing.
Advertising – Any advertising that will be used by you to target prospects in Maryland or will be published and used only in Maryland, 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.
Financial Assurance – If the Commissioner finds you do not have adequate financial arrangements to fulfill your obligations to franchisees, the Commissioner may require some form of financial assurance be instituted, such as an escrow, deferral of initial fees, or posting of a surety bond.
Greenbelt, MD was the first community in the United States built as a planned city.
The most popular franchise industry in Maryland is commercial and residential cleaning.
(FRANdata)
Maryland 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 MD 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.
We also work with franchisors nearby in New York, Pennsylvania, Connecticut, New Hampshire, Massachusetts, and Vermont.
