What You Need to Know About Franchising
Minnesota may make the Top 10 list for the richest states in the U.S., but they are modest. Theirs is an economy that boasts affordability and job opportunity – a good place to put down roots and work toward the American dream.
It’s important you educate yourself before selling franchises or buying a new or existing franchise in Minnesota so that you know what legal requirements and protections exist for both buyers and sellers. Minnesota is a franchise registration state, with an initial filing fee of $400. The annual renewal cost is $300.
Minnesota Franchise Filing Fees
$400
Initial
$300
Renewal*
$100
Post-Effective Amendment**
*Renewal filings must be submitted within 120 days after your fiscal year end or Minnesota will require the filing be resubmitted as a new initial filing with payment of the initial fee. The filing fee is $300 for each renewal filing that includes a material change, and in general, this will be the case for your renewals. Your Spadea legal team will advise you should you qualify for a $200 filing fee (available in cases where your renewal filing does not include a material change).
**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 Minnesota until the amended FDD is approved and the registration is effectively amended.
Overview of Franchise Laws in Minnesota
Franchise laws in Minnesota are designed to create a fair and transparent environment for both franchisors and franchisees. One of the primary regulations requires franchisors to register their Franchise Disclosure Document (FDD) with the Minnesota Commerce Department. This state registration process involves an initial filing fee of $400 and an annual renewal fee of $300.
Minnesota is a moderately difficult state to register in. In some cases, it can take months to secure an approval. If you want to do deals in Minnesota, the sooner you file the better.
In order to sell franchises in Minnesota, we must get an initial approval which needs to be renewed annually. If after receiving approval, your franchise offering has a “material change”, you would then need to file an Amendment and have it approved.
Potential Legal Challenges for Minnesota Franchisors
Franchisors operating in Minnesota face several legal hurdles, including:
- Adhering to State-Specific Disclosure Requirements: It’s essential to be familiar with Minnesota’s unique disclosure rules.
- Navigating the Renewal Process: Keeping the FDD updated with timely amendments is crucial to avoiding potential legal issues.
- Advertising Compliance: Franchisors must ensure that their advertising meets state guidelines, which often means getting pre-approval for local ads.
- Providing Financial Assurance: Meeting the financial assurance requirements set by the Commissioner is necessary for compliance.
The Importance of Legal Counsel in Drafting Franchise Agreements
At Spadea Lignana, we emphasize the vital role that legal counsel plays in the process of drafting, reviewing, and negotiating franchise agreements. Here are some key areas where legal expertise is invaluable:
- Compliance and Registration: Legal advisors help ensure compliance with regulations, reducing the risk of legal pitfalls.
- Negotiation and Dispute Management: An experienced attorney can effectively manage negotiations and resolve disputes with franchisees, protecting your interests.
- Intellectual Property Protection: Guidance on safeguarding your intellectual property and licensing can help maintain the integrity of your business.
Selecting the Right Minnesota Franchise Attorney
Choosing a legal partner is a significant decision for franchisors. Here are some factors to keep in mind:
- Experience in Franchise Law: Look for attorneys who specialize in franchise law and have a proven track record.
- Client Feedback: Positive testimonials from past clients can provide insight into an attorney’s capabilities and approach.
- Communication Style: Ensure your attorney is approachable, responsive, and willing to collaborate closely with you.
Advantages of Hiring a Franchise Attorney
Working with a knowledgeable franchise attorney comes with numerous benefits:
- Minimized Legal Risks: A good attorney helps ensure your franchise stays compliant with legal requirements, reducing potential liabilities.
- Regulatory Compliance: Stay up-to-date on evolving regulations to avoid costly mistakes.
- Protection of Intellectual Property: Safeguarding your brand and proprietary information is crucial for long-term success.
Frequently Asked Questions for Franchisors
What Are the Typical Costs Associated With Hiring a Franchise Lawyer?
Costs can vary widely depending on the complexity of your needs. At Spadea Lignana, we offer our CORE program with fair flat fees for ongoing legal support.
How Long Does It Take to Draft a Franchise Agreement?
While timelines can vary, we focus on streamlining the drafting process to align with your business goals.
Can a Franchise Lawyer Assist With Franchise Expansion and Growth Strategies?
Absolutely! We provide strategic advice on expansion initiatives while ensuring compliance with applicable laws.
What Are Common Legal Pitfalls Franchisors Should Be Aware Of?
Franchisors should be vigilant about registration requirements, advertising rules, financial assurance obligations, and keeping FDDs current. Minnesota has specific filing deadlines that must be met to ensure smooth operations.
At Spadea Lignana, we understand that navigating franchise laws in Minnesota can be complex. Our mission is to support you through these challenges, helping ensure your franchise thrives while minimizing legal risks.
Notes
Minnesota requires notary on the application required for each filing.
The filing fees for all filings must be made via check payable to “Minnesota Commerce Department”.
Audited financials are required for initial and renewal filings in Minnesota. The state may also require the submission of unaudited financials to supplement the audit in certain circumstances.
No deals may be closed in Minnesota until the initial, renewal or amendment filing is approved, and all Minnesota prospects must be disclosed/redisclosed with the approved FDD.
Financial Assurance – If the Commissioner finds there is a lack of adequate financial arrangements to fulfill obligations to the franchisees, the Commissioner may require the escrow, impoundment, or deferral of franchise fees until the franchised business has opened to the public. In certain circumstances, the Commissioner may allow the posting of a surety bond in lieu of the other forms of financial assurance.
Advertising – Any advertising that will be used by you to target prospects in Minnesota or will be published and used only in Minnesota must be filed with the state at least five days prior to its first use. If the state does not provide written disapproval within three business days from the filing date, the advertising may be used.
Minnesota requires notary on the application required for each filing.
The filing fees for all filings must be made via check payable to “Minnesota Commerce Department”.
Audited financials are required for initial and renewal filings in Minnesota. The state may also require the submission of unaudited financials to supplement the audit in certain circumstances.
No deals may be closed in Minnesota until the initial, renewal or amendment filing is approved, and all Minnesota prospects must be disclosed/redisclosed with the approved FDD.
Financial Assurance – If the Commissioner finds there is a lack of adequate financial arrangements to fulfill obligations to the franchisees, the Commissioner may require the escrow, impoundment, or deferral of franchise fees until the franchised business has opened to the public. In certain circumstances, the Commissioner may allow the posting of a surety bond in lieu of the other forms of financial assurance.
Advertising – Any advertising that will be used by you to target prospects in Minnesota or will be published and used only in Minnesota must be filed with the state at least five days prior to its first use. If the state does not provide written disapproval within three business days from the filing date, the advertising may be used.
The Twin Cities – Minneapolis and St. Paul – are the cultural hub of the state. Minneapolis has surpassed Washington D.C. as America’s Most Literate City.
(mentalfloss.com)
Known as the Land of 10,000 Lakes, but the state has more than 11,000, aiding the $16 billion tourism industry.
(mn.gov)
1% of Minnesota residents are farmers, though the agricultural output is the biggest industry in the state.
(worldatlas.com)
Minnesota 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 MN 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 franchises in Michigan, Wisconsin, and Illinois.
