New Jersey

Registration or Filing Required? No
Business Opportunity Laws? Yes

New Jersey is not a franchise registration state nor a franchise filing state. So, you may offer or sell your franchise without registering or filing your Franchise Disclosure Document (“FDD”) with the state, provided that you are compliant with the Federal Franchise Rule. However, New Jersey does have a Franchise Practices Act that may impose additional burdens on certain franchisors.

What is the New Jersey Franchise Practices Act?

The New Jersey Franchise Practices Act defines a franchise as a written arrangement in which a person grants a license to use their trademark, service mark, or related characteristic to another person, and the parties have a common interest in marketing the goods or services under the agreement. The Act applies to franchise scenarios in which the franchisee is required to maintain a place of business in the state, the gross sales between the franchisor and franchisee exceeds $35,000 for the previous 12 months, and more than 20% of the franchisee’s gross sales are derived from the franchise. It also applies to franchises in the sale of motor vehicles.

In general, the act restricts the franchisor’s ability to terminate the franchise agreement without good cause and requires them to provide the franchisee with 60 days’ notice of their intent to terminate or not renew the agreement, except in certain circumstances. If the franchise agreement is terminated or not renewed, franchisors are also prohibited from requiring franchisees to pay excessive damages, guarantee the debts of the franchise, or impose non-compete covenants that exceed six months or extend outside the county in which the franchise was located. The Act also requires franchisees to provide certain information to the franchisor about potential transferees and restricts the franchisor’s ability to reject the transfer without providing material reasons for such rejection.

Additionally, the law provides the following laundry list of behaviors that will land franchisors in violation of the Act:

1. Requiring franchisees to agree to releases or waivers of claims that could be brought under the Act, at the time they enter into a franchise agreement
2. Restricting the free association of franchisees
3. Requiring or prohibiting a change in management of a franchisee without good cause
4. Restricting the sale of equity or transfer or securities of a franchisee, unless the basic franchise financial requirements are not met
5. Imposing unreasonable standards of performance or other requirements on a franchisee

Fun Fact: New Jersey was nicknamed the garden state because of its fertile land. You wouldn’t see that today as it is now the most densely populated state, with approximately 90% of its residents living in what’s considered an urban area!