Washington

Registration or Filing Required? Yes, Registration
Business Opportunity Laws? Yes

Washington is a franchise registration state. So, you must register your FDD with the Washington State Department of Financial Institutions Securities Division prior to offering or selling franchises in the state. Washington charges a $600 fee for the initial registration application and a $100 fee for amendment or renewal applications. Renewal applications must be done annually at least 15 days before the registration expiration. More information can be found on the Washington Department of Financial Institutions’ Website.

What is Considered a Franchise in Washington?

Washington defines a franchise as an agreement in which:

1. The buyer is granted the right to offer, sell, or distribute goods or services under a marketing plan prescribed by the seller;
2. The operation of the business is substantially associated with a trademark or other commercial symbol designating, owned by, or licensed by the seller; and
3. The buyer pays a franchise fee.

How Do I Know if I Have to Register?

Franchises are subject to Washington’s Franchise Investment Protection Act, and must be registered whenever the franchisee is a resident of the state or the franchisee’s business will be located in the state. Additionally, you must register your franchise in Washington if an offer to sell your franchise is directed to the state or accepted in the state. Offers to sell a franchise originating in Washington are only subject to the Act if they violate franchise or business opportunity laws of the state they are directed to.

How do I Register in Washington?

Registering in Washington is now done through their online application system. For your initial registration you will need to fill out the information required and upload PDFs of the necessary forms, including:

1. The NASAA Franchise Registration Application
2. Franchisor’s Costs and Source of Funds
3. Uniform Consent to Service of Process
4. Franchise Seller Disclosure Form
5. Consent of Accountants to use their audited financial statements
6. Corporate, Individual or Partnership Acknowledgement
7. Advertisements (all adds must be filed at least 5 days prior to use)
8. A Franchise Impound Agreement or Guarantee of Performance (if required)
9. Your FDD
10. The $600 filing fee which can be paid by credit card or E-check.

Washington generally requires audited financial statements but depending on the situation may accept phasing-in the use of audited financial statements or ones prepared in accordance with generally accepted accounting principles.

Will I Need to File Annual Renewals?

In order to renew your franchise registration in Washington, you must submit a renewal application in the same online portal as the initial registration. It requires the same information as the initial registration except that you do not need to submit another Consent to Service of Process. Additionally, you must submit two copies of you FDD – one clean and one marked to show changes from the previous year. The renewal fee is $100. Note that if you fail to renew your registration before your registration expiration date, you must complete a Franchise Reapplication, which has the same requirements, except that the fee is $600.

What About Amendments to my FDD?

You must file an amendment application as soon as reasonably possible, and before the sale of any additional franchises, whenever there is a material change to the information contained in the FDD. What constitutes a material change is subjective, and your friends here at Drumm Law would be happy to discuss whether a change to your FDD would qualify as a material change. Amendments can be filed in the same online portal as other applications, and must include the same Registration Application, two copies of the FDD (one clean and one marked to show the changes made), and a payment of $100.

Does Washington Have Financial Requirements on Top of That?

Washington may impose financial conditions as part of your registration. As noted above, a state examiner may require the franchisor to file an Impound Agreement in which the franchisor agrees to escrow its upfront franchise fees until the franchisee is ready to open the franchised business. Alternatively, the examiner may accept a Guarantee of Performance from the franchisor’s parent company, a surety bond, or deferral of initial franchise fees.

Wow, Are There Any Exemptions to Registration?

Washington does have registration exemptions, the majority of which relate to the transfer of a franchise by a franchisee. However, they do have a couple additional exceptions that exempt a franchisor from registering, including franchises whose initial franchise fee is $500 or less, and those selling franchises to accredited investors or already existing franchisees.

On top of that, there is the so called “big boy” exemption where a franchisor does not need to register if the franchisor: (i) has a net worth (or parent company net worth) of at least $5 million; (ii) has had at least 25 franchisees continuously operating during the previous 5 years; (iii) requires an initial investment of more than $100k; and (iv) annually submits the required exemption form to the state along with an annual payment of $100.

Finally, Washington has a limited franchise scope exemption by which a franchisor does not need to register if: (i) it has no franchises outside the state; (ii) it does not sell more than 3 franchises in the state; (iii) it does not advertise the franchise in the state; and (iv) the franchisee is represented by independent legal counsel or a CPA.

That’s already a lot to take in, does Washington also have laws affecting the Franchise Relationship?

You bet it does! Now you wish you didn’t even ask. Jokes aside, Washington’s Franchise Investment Protection Act also has numerous provisions that impose additional obligations on the franchisor. Here are several of the actions it prohibits a franchisor from doing:

• Restricting a franchisee’s ability to participate in franchisee associations.
• Requiring a franchisee to adhere to a standard of conduct unless said standard is proven to be reasonable and necessary.
• Charging a franchisee more than a fair and reasonable price for any product or service.
• Discriminating between franchisees with respect to the fees or prices offered for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing. The franchisor may vary these terms if it can prove, the variation is reasonable, non-arbitrary, and resulted from the franchises being granted at significantly different times.
• Obtaining rebates without disclosing them to the franchisee.
• Competing with a franchisee in its exclusive territory, whether it is done directly by the franchisor or through another franchisee.
• Requiring a franchisee to consent to a release or waiver that relieves the franchisor from liabilities imposed by the Act.
• Terminating the franchise agreement without good cause (as defined by the Washington statutes).
• Refusing to renew a franchise agreement without compensating the franchisee for the fair market value of its inventory, supplies, equipment and furnishings purchased from the franchisor and its goodwill. A franchisor doesn’t have to comply with this if it has provided the franchisee with one year’s notice AND it waives its right to enforce any of the agreement’s non-compete provisions.

We know that sounds like a lot, and it is. But don’t let that deter you from franchising your business in Washington – we are here to help you every step of the way.

Does Washington Have Separate Business Opportunity Laws?

Yes, Washington does have a separate Business Opportunity Fraud Act, which among other things, requires the sellers of business opportunities to register their business opportunity with the state and provide potential buyers with their own specific disclosures about their business opportunity. The state’s definition of a business opportunity specifically excludes franchises. More information on Washington’s business opportunity requirements can be found here.

Fun Fact: The City of Everett clearly felt that hypnotizing was a practice best done behind closed doors, and in 1974 imposed an ordinance that makes it illegal to display a hypnotized person in a store window.