Connecticut franchise registration is a relatively simple process. The U.S. Federal Trade Commission is responsible for regulating the various state agencies that provide for franchising registration. The rules provided by the FTC apply to every state in the U.S. There are some instances where state franchising laws come into effect, including:

  • The sale of a franchise made in the state.
  • When the franchised business will be located in the state.
  • When the franchisee is a resident of the state.

What Is a Franchise?

The FTC requires three elements under the Franchise Rule for a business to be considered a franchise and subject to franchise law.

Trademark

A franchise is a business that has been given the rights to distribute services and goods that are marked with a franchisor's network trade name, logo, commercial symbol, or service mark.

Significant Assistance or Control

If the franchisor maintains a significant amount of control or provides a significant amount of assistance to the franchisee's methods of operation, it is considered a franchise. Some forms of control are:

  • Approval of the site of the business.
  • Set requirements on how the site should appear or be designed.
  • Specifications for the hours the business should operate.
  • Specific production requirements or techniques.
  • Account practices that must be followed.
  • Participation in specified promotional campaigns.
  • Participation in training programs.
  • Guidance by an operator's manual.

Required Payment

A business is considered a franchise if the franchisee is required to make a payment to the franchisor for at least $500 or more before they are able to open the business. These required payments are often agreed upon for the right to be able to operate the franchise. Fees paid to a franchisor can include such things as:

  • Franchise fees.
  • Royalties.
  • Service payments.
  • Payments from product sales.

If all three requirements are met, then the business will be considered a franchise under FTC law.

While states vary, there are some commonalties regarding the definition of a franchise under state law, including:

  • A common marketing plan: In a franchise, the franchisee often engages in the selling or distributing of goods and services under the outlines of a marketing plan set forth by the franchisor.
  • Trademark association: A franchise operation often involves a very substantial association with the franchisor's service marks, trademarks, or trade names.
  • Required fees: A franchisee is required to pay a franchisor in either a direct or indirect way.
  • Common interest: Both the franchisee and the franchisor will have a common interest in the marketing and selling of the same goods and services.

Categories of Law Regarding Franchises

There are three primary categories of franchise laws, including disclosure laws, registration laws, and relationship laws.

There are multiple types of disclosure laws regarding a franchise, including:

  • Pre-sale disclosure laws.
  • Laws prohibiting franchise sale practices.
  • A mandatory cooling-off period before making a franchise sale.

There are also registration laws that govern franchises that include such items as:

  • Registering the franchise.
  • Registering the franchise salespeople.
  • Registering the franchise advertising.

The relationship laws that regulate franchises often involve laws regarding the relationship between a franchisor and a franchisee and include such things as:

  • Grounds that can be considered for terminating a franchise.
  • The cure period and notice period for terminating a franchise.
  • The grounds for not renewing a franchise.
  • Rules for equal treatment of franchisees.

Common Franchise Law Violations

There are certain types of franchise law violations that often occur, leading to possible legal battles. Some of the most common violations are:

  • Selling a franchise that is not registered.
  • Not providing a UFOC, or Uniform Franchise Offering Circular, in a timely fashion.
  • Not providing all necessary disclosure in the UFOC.
  • Misrepresenting the franchise to the franchisee.
  • Improperly terminating or not renewing a franchise.

Penalties for Violating Franchise Law

There are a variety of penalties that might be imposed when someone is found guilty of violating franchise law. Some such penalties are:

  • Fines.
  • Permanent bans from further engaging in franchising activities.
  • Freezing a franchisor's assets.
  • Imposing monetary damage for victims of violations.
  • Jail time for severe violations.

When a penalty is handed down, it can be imposed on a number of people connected to the franchise, including:

  • Officers.
  • Directors.
  • Franchisors.
  • Managers who have direct control of the activities of the franchise.

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