State Franchise Registration Status and Franchise Laws
Virginia
Registration or Filing Required? Yes, Registration
Business Opportunity Laws? Yes
Virginia is a franchise registration state. So, you must register your FDD with the Virginia State Corporation Commission prior to offering or selling franchises in the state. Virginia charges a $500 fee for the initial registration application and a $250 fee for renewal applications, which must be done annually. More information can be found on the Virginia State Corporation Commission’s Website.
What Does Virginia Consider a Franchise?
The Virginia Retail Franchising Act and its Administrative Rules define a franchise as an agreement that grants the buyer the right to distribute goods or provide services under a marketing plan prescribed by the seller, where the buyer pays a fee of $500 or more, and the buyer’s business is substantially associated with the seller’s trademark or other commercial symbol.
When do Franchises Have to Register?
You must register your franchise in Virginia whenever a franchised business will be located or operated in Virginia.
How do I Register My Franchise in Virginia?
Virginia provides a very handy list of what documents are required to register your franchise in the state. Registrations can be submitted as hard copy checks and CD-ROMs, or electronically through the NASAA EFD UTF System. The initial registration application should include:
- Uniform Franchise Registration Application
- Franchisor’s Costs and Source of Funds
- Uniform Consent to Service of Process
- Guarantee of Performance (if necessary)
- A copy of Auditor’s Consent Letter
- Corporate Acknowledgement (if applicable)
- A clean copy of your FDD
- The $500 filing fee (checks made payable to the Treasurer of Virginia).
Virginia requires audited financial statements and does not allow start-up franchisors (within their first year of operation) to use an unaudited opening balance sheet. All franchises must submit audited financial statements. Registrations are valid for one year from the registration date.
Do I Need to Renew My Franchise Registration?
Yes, franchisors must renew their franchise registration every year, and must file their renewal application 30 days prior to the one-year anniversary of their registration date. If they fail to do so, they may be required to go through the initial registration process again. Annual updates must include the Uniform Franchise Registration Application, 2 copies of your FDD (one clean and one marked), the $250 renewal fee, and if applicable, a Guarantee of Performance, Auditor’s Consent Letter and Corporate Acknowledgement. Additionally, annual renewals require the inclusion of three years of audited financial statements comprised of “statements of operations” (profit and loss statements), “statements of stockholders equity”, and “statements of cash flows”.
Do I Need to File Amendments to My FDD?
Yes, Virginia requires franchisors to file amendments within 30 days of making a material change to their FDD. Amendment applications must include the Uniform Franchise Registration Application, the $100 amendment fee, two copies of your FDD (one clean and one showing the material changes), and if applicable, a Guarantee of Performance, Auditor’s Consent Letter and Corporate Acknowledgement. Franchisors are also required to update their FDDs within 120 days of the end of their fiscal year. This can be a part of a franchisor’s annual renewal, but only if those dates align.
Does Virginia Have Financial Assurance Requirements?
Yes, after reviewing the financial statements contained in your FDD, the state examiner may require you to agree to one of the following financial assurance requirements if he or she is not sufficiently convinced of the business’s ability to meet its long-term debt and financial obligations: (i) deferring the initial franchise fee until your franchisee has opened for business; or (ii) escrowing your initial franchise fees with an approved Virginia bank.
Are There Any Exemptions to Registration?
Virginia does have certain exemptions from franchise registration listed in its Retail Franchising Act Rules. The exemptions are based on the experience and financial condition of the franchisor, or the characteristics of the offer or franchise agreement. Certain exemptions require you to file documents with the State Corporation Commission prior to offering or selling franchises based on that exemption. The documents required for filing for an exemption are almost identical to those required to file for registration.
Does Virginia Have Any Additional Franchise Rules?
Yes, there are some additional laws which apply to franchises. For instance, franchisors are prohibited from terminating a franchise without reasonable cause and cannot use undue influence to induce a franchisee to voluntarily surrender their rights in the franchise agreement. The state also requires that franchisors permit potential franchisees to negotiate all provisions of the franchise agreement (though they are not required to acquiesce to any proposed changes).
Does Virginia Have Separate Business Opportunity Laws?
Yes, in Virginia does have a separate Business Opportunity Sales Act, which among other things, requires the sellers of business opportunities to provide potential buyers with their own specific disclosures and potentially obtain a surety bond or escrow account of their own. The state’s definition of a business opportunity specifically excludes franchises.