Franchising is a relatively new body of law with a complex regulatory scheme. Both the franchise sales process and the relationship between franchisor and franchisee during the term of the franchise are regulated. At the federal level, the Federal Trade Commission (FTC) requires franchisors to make prescribed disclosures to prospective franchisees, and, in addition, some 13 states have similar disclosure requirements and make franchisors register their selling efforts with the state. Fortunately, the state and federal disclosure requirements are very similar, but not exactly the same, leading to some need to have slightly different documents in order to comply with both federal and state disclosure requirements.
On the relationship side, approximately 22 states have adopted statutes of general applicability that govern various aspects of franchise arrangements once the franchise relationship has been established. These may include protection of franchisees from unjust terminations or nonrenewals, limiting the rights of franchisors to disapprove assignments or product sourcing, encroachment restrictions on the franchisor, and protecting franchisees’ freedom to associate with other franchisees.
The New York Statute
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