North Dakota

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

North Dakota is a franchise registration state. So, you must register your FDD with the North Dakota Securities Department prior to offering or selling franchises in the state. North Dakota charges a $250 fee for the initial registration application and a $100 fee for renewal applications, which must be done annually. More information can be found on the North Dakota Securities Website.

What Qualifies as a Franchise in North Dakota?

North Dakota’s Franchise Investment Law defines a franchise as a contract or agreement, in which:

1. A franchisee is given the right to offer, sell or distribute goods or services under a marketing plan or system prescribed by the franchisor;
2. The operation of the franchisee’s business is associated with the franchisor’s trademark or other commercial symbol; and
3. The franchisee is required to pay a franchise fee.

Do I Need to Register?

Any franchisor that offers or sells franchises in North Dakota or to a North Dakota resident must register with the Securities Department. An offer or sale is considered “made in the state” when an offer to sell is actually made or accepted in the state. Even if the offer or acceptance isn’t made in the state, franchisors will still need to register if the franchisee is a resident of North Dakota, and the franchised business will be located in North Dakota.

How Do I Register?

As of October 2021, franchisors must submit their registration documents through the NASAA Electronic Filing Depository. The initial registration application should include:

1. Cover Letter
2. Application Page
3. Franchisor’s Costs and Sources of Funds Form
4. Auditor’s Consent Form
5. Uniform Consent to Service of Process
6. Certification Page
7. Proposed FDD
8. Copies of proposed advertisements and
9. The $250 registration fee.

After submitting your application, it will be reviewed by a state examiner who will either approve the registration or request you make modifications to your FDD to comply with North Dakota’s franchise law. The typical turnaround time on approving franchise registration in North Dakota is 4 to 6 weeks.

How Do I Renew My Registration?

Registrations expire 1 year after their registration date, and renewal applications must be submitted 15 business days prior to the expiration of your current registration. If you do not submit your renewal application on time, you may be forced to complete a new initial registration application. As part of your renewal application, you must submit:

1. Cover Letter
2. Application Page
3. Franchisor’s Costs and Sources of Funds Form
4. Auditor’s Consent Form
5. Certification Page
6. Two copies of your FDD (one clean, and one redlined to reflect changes made)
7. Copies of advertisements not previously filed
8. The $100 renewal fee.

What About Amendments to My FDD?

North Dakota requires franchisors to promptly file an amendment disclosing any material changes made in the registration application. The state does not define what it considers to be a “material change”. In order to amend an application, you must submit a cover page, signature page, copies of the amended pages of the registration documents reflecting the material changes, and a $50 filing fee.

Does North Dakota Have Financial Assurance Requirements?

Yes, if during the examination process, the examiner determines that your franchise has insufficient capital, he or she will condition your registration approval on your agreement to defer initial franchise fees or posting a bond. The state will also require some form of financial assurance for startup franchises who submit unaudited opening balance statements as part of their application.

Are There Exemptions to Registration?

Yes, there are franchise exemptions to North Dakota’s registration requirements. In order to claim an exemption, a franchisor must submit a cover letter, clarifying the nature of the exemption they’re seeking, a clean copy of their FDD, and a $100 filing fee. This exemption must be renewed every year with the same documents (except that the exemption renewal fee is only $50). Franchisor will be exempt from the state’s registration requirements when:

1. The franchisor has a net worth of at least $10 million (or $1 million but is at least 80% owned by an entity with a net worth of at least $10 million);
2. The franchisor has had at least 25 franchisees in operation for the past 5 years;
3. Provides prospective franchisees with the required disclosures at least 7 days before signing an agreement or collecting fees; and
4. Has filed a notice of exemption with the state.

Sales made by franchisees of their own business are also exempt from the registration requirements.

What Other Restrictions Does North Dakota Impose on Franchises?

North Dakota has imposed several restrictions on what can be enforced in a franchisor’s FDD. Among other things, a franchisor cannot require franchisees to:

1. Consent to the jurisdiction of courts outside of North Dakota.
2. Consent to liquidated damages or termination penalties.
3. Sign a general release upon renewal of the franchise agreement.
4. Waive their right to a jury trial or exemplary and punitive damages.
5. Consent to the governing laws of another state.
6. Consent to a limitation of claims.
7. Pay all costs and expenses incurred with the enforcement of the franchise agreement.

Fun Fact: President Benjamin Harrison signed the document admitting North Dakota into the Union at the same time he signed South Dakota’s, but he kept it a secret which one he signed first. So, North Dakota could be either the 39th or 40th state. Since it came first in the alphabet, it was deemed the 39th.