March 3, 2020
While franchise agreements are ultimately a product of contract law, Virginia is one of only a handful of “franchise registration” states. Franchisors must register their Franchise Disclosure Document (FDD) with the Virginia State Corporation Commission’s (SCC) Division of Securities & Retail Financing. In addition to registration, your FDD must comply with Virginia state franchising and federal securities laws. Virginia provides uniform franchise registration application forms online, but franchisors are responsible for drafting a Virginia-complaint franchise agreement and FDD regardless of where the contract is signed or the parties’ choice of law.
Virginia is open for business to new franchisees whether originating inside or outside the Commonwealth. Ensuring compliance with Virginia’s Retail Franchising Act is the first step to opening a successful franchise, and the top-rated Virginia franchise agreement lawyers at McClanahan Powers, PLLC, can spearhead this process. Schedule your Virginia complaint franchise agreement and FDD consultation with the experienced Virginia small business lawyers at McClanahan Powers, PLLC, by calling (703) 520-1326 or contacting us online.
The Virginia Retail Franchising Act, located within the Virginia Administrative Code, sets forth the basic forms, materials, and information necessary to apply for registration of a franchise in Virginia.
Filing the above documents with the Virginia SCC, however, does not guarantee registration and legal operation of the franchise. The application must still be approved by the Virginia SCC, and noticeably absent from the registration packet is the franchise agreement itself.
FDD’s are governed by federal law, specifically the Federal Trade Commission’s franchise regulations. An FDD must include a federally-complaint cover page, table of contents, and any necessary disclosure items including, but not limited to, the following:
In addition to these items, Virginia law requires every FDD include an independently audited opening balance sheet for start-up franchisors in their first fiscal year of franchise sales and state law-complaint cover sheets and effective dates pages.
While FDDs are governed by federal law and any required state supplements, the franchise agreement itself is generally a product of state contract law. Your franchise agreement covers the terms and conditions of the franchise purchase and operation. Typically, franchise agreement include provisions regarding:
Additionally, franchise agreements often contain a myriad of legal recitations. These may include choice of law provisions, insurance and indemnification requirements, arbitration and attorney’s fees agreements, provisions for modification and termination, renewal requirements, and business risk recitations. A franchise agreement should also incorporate the FDD and any related documents submitted to the Virginia SCC.
The law governing franchising in the United States is complex, not least of all because it incorporates substantial provisions of both state and federal law. This may include the law of the state in which the contract was executed, the law of the state in which the franchise was located, the law of the state where the parent company is located, and the law of the state the parties elect to govern the franchise agreement. The local laws that apply to the day-to-day operation of a Virginia franchise and non-contract disputes further complicate these agreements.
Most major franchising agreements are adhesion contracts, which means they’re standard contracts drafted by and to the benefit of the franchisor. Virginia franchisees may struggle to modify these agreements to reflect their understanding of the business relationship and interpret their obligations under the contract. Franchisors may similarly struggle to modify these standard forms to comply with Virginia federal and state law, including necessary FDD additions and Virginia reporting requirements. Working with an experienced Virginia franchise lawyer is essential when opening or expanding a franchise to the Commonwealth.
To ensure your franchise agreement and FDD are compliant with relevant state and federal law, schedule a consultation with the experienced Virginia franchise lawyers at McClanahan Powers, PLLC, today by calling (703) 520-1326 or contacting us online.