State Franchise Registration Status and Franchise Laws

Maryland


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

Maryland is a franchise registration state. So, you must register your FDD with the Securities Division of the Maryland Attorney General’s Office prior to offering or selling franchises in Maryland. Maryland charges a $500 fee for the initial registration application and a $250 fee for renewal applications, which must be done annually. Maryland requires franchisors to submit their renewal materials at least 15 days before the anniversary of their registration date. More information can be found on Maryland’s Office of Attorney General Website.

When Does a Franchise Have to Register in Maryland?

The Maryland Franchise Registration and Disclosure Law has a broad geographical reach and requires registration when, (i) either the franchisor or the franchisee is a resident of Maryland, (ii) the business will be operated in Maryland, or (iii) where the offer to sell is made, directed to, or accepted in Maryland. While the law is difficult to navigate, the Maryland Attorney General’s Office has provided useful information on both registering and renewing your franchise registration.

How Do I Register in Maryland?

In order to register your franchise in Maryland, you must submit the required documents in both paper and CD format to the Securities Division, Office of the Attorney General, 200 St. Paul Place, 20th Floor, Baltimore, MD 21202. The documents a franchisor must submit include:

  1. A Uniform Franchise Registration Application
  2. A Franchisor’s Costs and Source of Funds
  3. A Uniform Franchise Consent to Service of Process
  4. A Franchise Seller Disclosure Form
  5. A Franchise Disclosure Document, with State Cover Page
  6. An application fee of $500 (by check made payable to “Office of the Attorney General”)
  7. A Guarantee of Performance of parent or affiliate (if required)
  8. A Consent of Accountant
  9. Copies of advertising or promotional materials

Maryland is one of the registration states that reviews franchise registration applications, so the time between submitting an application and obtaining registration can vary based on the completeness of the application, and whether the state requires any changes to be made to the FDD. Once the examiner accepts your FDD, you will receive an email advising you of your registration date. Maryland is commonly known to be one of the more difficult states to get registered in.

When Do I Need to Renew My Registration?

You must renew your registration in Maryland annually. The renewal application must be submitted at least 15 business days before the expiration of your current registration, otherwise you will be forced to file another initial registration application. The renewal application requires the same documents as the initial application, except that the application fee is only $250.

When if I Amend My FDD?

If you make any material changes to your FDD during your registration period in Maryland, you must promptly file an amendment to your registration with the Securities Division and pay the $100 amendment fee. The state does not define what is considered “prompt” filing, so it is best to file amendments as soon as reasonably possible. Maryland provides some examples of material changes, which includes:

  1. Terminating 10% of your franchised business in Maryland or 5% of all franchised businesses regardless of location, within any 3-month period.
  2. Any change in control of the franchisor, corporate name, or state of incorporation.
  3. Any reorganization of the franchisor.
  4. Introducing a new product or service requiring additional investment by the franchisees.
  5. Discontinuing or modifying a current product or service which accounts for at least 20% of franchisee gross sales.

Does Maryland Have Any Financial Assurance Requirements?

Yes, Maryland is one of the franchise registration states that may impose financial assurance requirements as part of your registration. During the registration and renewal process the examiner will review the financial statements in your FDD, and evaluate your assets, liabilities, shareholders equity, and working capital. If the examiner determines that you don’t possess enough assets and capital to fulfill your obligations to your franchisees, you will be required to satisfy some financial assurance requirement prior to registration. Typical financial assurance requirements include deferring or escrowing initial franchise fees or requiring the franchisor to post a surety bond.

Are There Exemptions to Registration?

Yes, the Code of Maryland Regulations contains several registration exemptions, including:

  1. Out-of-state sales, in which: (i) the franchisee is not a Maryland resident; (ii) the franchised business will not to be operated, wholly or partially, in Maryland; (iii) the sale does not violate any law of the foreign state, territory, or country of which the franchisor or franchisee is a resident; and (iv) the sale does not violate the antifraud provisions of the Maryland Franchise Law.
  2. Nominal franchise fee sales, in which the franchise fee does not exceed $100.
  3. Sales made by “seasoned franchisors”, which the code defines as either having a net equity of $10,000,000 or $1,000,000 while being at least 80% owned by an entity with a net equity of $10,000,000 and has had at least 25 franchisees operating the same franchised business during the past 5 years.
  4. Sales to sophisticated franchisees where the initial investment made by the franchisee is more than $750,000.
  5. Sales to institutional franchisees such as banks, loan associations, trust companies, insurance companies, investment companies or other financial institutions.

In addition to that, the Maryland regulations allow the Maryland Office of the Attorney General to exempt other transactions when it determines, in its sole discretion, that registration is not necessary for said transactions. In order to claim one of these exemptions, the franchisor must submit a Notice of Exemption for each exemption claimed, along with a Consent for Service of Process, a $250 filing fee, and an undertaking where the franchisor agrees to provide any additional documents requested by the Maryland Attorney General’s Office.

The Maryland Franchise Law also contains certain registration exemptions, including those related to transactions made by an executor, administrator, sheriff, receiver, trustee in bankruptcy, guardian or conservator, and those sales made to already existing franchisees.

Does Maryland Have Any Additional Franchise Relationship Laws?

Yes, in addition to registration, Maryland does have additional laws governing certain aspects of the franchise relationship. Most of the laws are prohibitions against false or misleading information, but it is important to note the law that prohibits franchisors from requiring potential franchisees to enter into a release or waiver of claims arising from the franchise agreement. Additionally, Maryland law allows for sub-franchising using “area” franchises, which is a contract in which the franchisor grants a sub-franchisor the right to sell franchises in the franchisor’s name.

What Are Maryland’s Business Opportunity Laws?

Maryland also has business opportunity laws that govern the sale of business opportunities. Franchises are specifically excluded from the business opportunity laws. Nevertheless, it is worth being aware of these laws in case your business does not meet the definition of a franchise.

Maryland defines a business opportunity as a sale of goods or services exceeding $300 in which the goods or services enable the buyer to start a business, and the seller represents it will do one of the following:

  1. Provide locations or assist buyer in finding locations for vending machines, racks, display cases or devices;
  2. Assist the buyer in finding outlets or accounts for products or services;
  3. Buy any products made by the buyer using items sold by seller;
  4. Guarantee buyer will derive income exceeding purchase price;
  5. Refund some/all money or buy back some/all products if buyer is not satisfied;
  6. Provide a sales or marketing plan.

Business opportunities are also required to register in Maryland and must comply with any financial assurance requirements imposed. Like franchises, they must also provide potential buyers with the appropriate disclosure documents and are prohibited from using fraud or deceit in influencing said buyers.

Fun Fact: Did you know that the Baltimore Ravens team name was derived from Edgar Allen Poe’s poem, “The Raven”? It does! Poe was born in Boston but lived most of his life in Baltimore.