What you Need to Know about Opening a Business in the Commonwealth
While franchise agreements are ultimately a product of contract law, Virginia is only a handful of “franchise registration” states. Franchisors must register their Franchise Disclosure Document (FDD) with the Virginia State Corporation Commission’s (SCC) Securities & Retail Financing Division. In addition to registration, your FDD must comply with Virginia state franchising and federal securities laws. Virginia provides consistent franchise registration application forms online. Still, franchisors are responsible for drafting a Virginia-complaint franchise agreement and FDD regardless of where the contract is signed or the parties’ choice of law.
Virginia is open to new franchisees, whether inside or outside the Commonwealth. Ensuring compliance with Virginia’s Retail Franchising Act is the first step to opening a successful franchise. The top-rated Virginia franchise agreement lawyers at McClanahan Powers, PLLC, can spearhead this process. Schedule your Virginia complaint franchise agreement and FDD consultation with the experienced Virginia small business lawyers at McClanahan Powers, PLLC, by calling (703) 520-1326 or contacting us online.
Preparing an Application for Registration of a Franchise in Virginia
The Virginia Retail Franchising Act, located within the Virginia Administrative Code, sets forth the primary forms, materials, and information necessary to apply for registration of a franchise in Virginia.
- Form A: Uniform Franchise Registration Application Page
- Form B: Total Costs and Sources of Funds for Establishing New Franchises
- Form C: Uniform Consent to Service of Process
- If applicable, an authorizing resolution from a corporation or partnership’s officer or general partner
- A compliant FDD, preferably drafted and reviewed by a qualified Virginia franchise lawyer
- Auditor’s consent to use the latest audited financial statements in the FDD, which should generally be from an audit within the past 120 days. If not, the applicant must include an unaudited interim balance sheet within 120 days of the application and an unaudited interim statement of income or operations from the date of the last audited financial statement
- A guarantee of performance, Form F, if necessary
- An electronic copy of the application with a cover letter and text searchable FDD
- An initial application fee of $500
However, filing the above documents with the Virginia SCC does not guarantee the registration and legal operation of the franchise. The Virginia SCC still approved the application and was noticeably absent from the registration packet.
Drafting a Franchise Disclosure Agreement (“FDD”) in Virginia
FDD’s are governed by federal law, specifically the Federal Trade Commission’s franchise regulations. Therefore, an FDD must include a federally-complaint cover page, table of contents, and any necessary disclosure items including, but not limited to, the following:
- Information, including names and addresses, of the franchisor and any parent companies, predecessors, and affiliates for the past ten years to include information about the nature of the business itself and the franchisor’s prior business experience
- Information, including the names, positions, and prior employment information of the franchisor’s directors, trustees, general partners, officers, and anyone with management responsibility for the franchise
- All information regarding past litigation, whether civil, family, or criminal, related to the business or individual managers
- Any bankruptcy information and disclosure of all initial and filing fees
In addition to these items, Virginia law requires every FDD to include an independently audited opening balance sheet for start-up franchisors in their first fiscal year of franchise sales and state law-complaint cover sheets and effective dates pages.
Drafting and Reviewing a Franchising Agreement in Virginia
While FDDs are governed by federal law and any required state supplements, the franchise agreement is generally a product of state contract law. Your franchise agreement covers the terms and conditions of the franchise purchase and operation. Typically, franchise agreements include provisions regarding:
- The nature, scope, and official granting of the franchise license itself
- The location and territorial limitations, if any, of the franchise
- Use of trademarks, copyrights, and patents
- Requirements for utilizing franchisor manuals, policies, and procedures
- The franchise fee and/or consideration for the grant of the license
- Provision for the sale and/or transfer of the franchise
- Scope of advertising, marketing, advertising fees
- Distribution of royalties and revenues
- Recordkeeping responsibilities
- Provisions for contracting with third-parties
- Employee and manager training requirements, if any
- Required equipment purchasing and leasing
- Provisions for protecting trade secrets and other confidential information
- The chartering and opening of the franchise itself including the grand opening, premises lease/purchase, building requirements, hours of operation, and holidays
- The operation of the franchise including employee compensation, hours, legal compliance, insurance, prices, restrictions, warranties, and staffing
Additionally, franchise agreements often contain a myriad of legal recitations. These may include a choice of law provisions, insurance, indemnification requirements, arbitration and attorney’s fees agreements, conditions for modification and termination, renewal requirements, and business risk recitations. A franchise agreement should also incorporate the FDD and any related documents submitted to the Virginia SCC.
The law governing franchising in the United States is complex, not least of all because it incorporates substantial provisions of both state and federal law. This may include:
- The law of the state in which the contract was executed.
- The law of the state in which the franchise was located.
- The law of the state where the parent company is located.
- The law of the state the parties elect to govern the franchise agreement.
The local laws that apply to the day-to-day operation of a Virginia franchise and non-contract disputes further complicate these agreements.
Call Us Today to Schedule a Consultation with a Virginia Franchise Attorney
Most major franchising agreements are adhesion contracts, which means they’re standard contracts drafted by and to the benefit of the franchisor. Virginia franchisees may struggle to modify these agreements to reflect their understanding of the business relationship and interpret their obligations under the contract. Franchisors may similarly struggle to adjust these standard forms to comply with Virginia federal and state law, including necessary FDD additions and Virginia reporting requirements. Therefore, working with an experienced Virginia franchise lawyer is essential when opening or expanding a franchise to the Commonwealth.
To ensure your franchise agreement and FDD are compliant with relevant state and federal law, schedule a consultation with the experienced Virginia franchise lawyers at McClanahan Powers, PLLC, today by calling (703) 520-1326 or contacting us online.