Arrangements the rule can reach
The FTC Franchise Rule is a pre-sale disclosure rule. It requires franchisors to give prospective buyers a disclosure document in a prescribed format a set period before any agreement is signed or money is paid. Whether a relationship counts as a franchise depends on its substance rather than its label, so a business expanding through licensing, distribution, or similar arrangements can be covered without realizing it. The rule has exemptions, some tied to the size of the deal or the sophistication of the buyer, and whether one fits is a question worth answering before marketing begins rather than after a buyer complains. A separate federal rule addresses certain business opportunities that fall outside the franchise definition.
Where New York adds its own requirements
The federal rule is enforced by the Federal Trade Commission, and it does not itself give franchisees a private lawsuit. State franchise laws are a different matter. New York is one of the states that require franchise offerings to be registered with the state before they are offered or sold, and its statute reaches offers made from New York as well as offers made to people there. State laws commonly give buyers their own remedies when disclosure or registration requirements are not met, which is why compliance problems often surface years later in litigation over a failed location. Earnings claims are a frequent pressure point, because financial performance statements made outside the disclosure document can create exposure under both federal and state rules.
What we review first
For franchisors, we look at how the offering is structured, whether a current disclosure document and any required state registrations are in place, and how sales staff and brokers talk to prospects, including in emails and texts. Fees, territory terms, and renewal rights described in the disclosure document should match the agreement that is actually signed. For prospective franchisees, we review the disclosure document alongside the agreement and point out where the risk sits in your situation. Bring the documents you received, the date you received each one, and any projections or figures someone showed you along the way.
