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How the FTC governs franchises in Arizona

On Behalf of | Dec 1, 2023 | Business & Commercial Law

Unlike some states, Arizona doesn’t have specific franchising laws or rules. As a franchisor, you’re not obligated to obtain approval from the state to offer or sell franchises, nor do you need to register your Franchise Disclosure Document (FDD) with the state. Despite this more relaxed state-level regulatory environment, it’s important to remember that you still need to provide an FDD to potential franchisees before they invest any money. This aspect is just one part of the broader franchising process in Arizona that you need to understand.

The Federal Trade Commission’s (FTC) Franchise Rule is central to this process. This rule is the primary law governing franchise operations in Arizona and across the United States. To ensure a successful start to your franchising journey, it’s crucial to understand the implications of the FTC’s Franchise Rule and how it shapes franchising ownership.

Disclosure requirements

The FTC’s Franchise Rule says that you, as a franchisor, must give a detailed FDD to potential franchisees at least 14 days before you sign any agreement or exchange any money. This document should contain essential information about your franchise, including its legal and financial history, startup and ongoing costs, rules, and other important business details.

Enforcement actions

The FTC can take action against franchisors who don’t follow the Franchise Rule, including imposing fines or court orders. As a franchisor, these actions are meant to ensure you follow the rules and don’t cross any lines.

Limited scope

While the FTC looks after franchise disclosure and marketing practices, it doesn’t manage the day-to-day operations of franchises or step in to solve disputes between franchisors and franchisees. The FTC’s main job is to ensure you, as a franchisor, provide all the necessary information to potential franchisees. This aids in their decision-making and contributes to a fair and transparent franchise marketplace.

Following federal rules

It’s crucial to follow the FTC’s rules as they govern franchises in Arizona. As a franchisor, if you do not follow these federal rules and your franchisees end up in a difficult situation, they could sue you for damages. They could also seek compensation for any losses incurred from buying the franchise. So, compliance is essential. It not only saves you money but also shields your business from potential legal issues.