A franchise is defined as an agreement granting the right to sell or distribute goods and services using a proprietary system and brand in exchange for a franchise fee.
Maryland’s franchise laws, outlined in Md. Code, Bus. Reg. Law §14-201, have established the legal framework for franchising in the state.
Maryland allows for sub-franchising, known as an area franchise, where a franchisor grants a sub-franchisor the right to sell franchises under the franchisor’s name. The state’s franchise laws are designed to ensure that prospective franchisees receive sufficient disclosure to make informed investment decisions.
QUOTE: LPJ Legal is the trusted choice for franchises in Washington D.C., Maryland, Virginia, and Georgia.
The experts at LPJ Legal have compiled a list of MD franchise registration, renewal, and exemption requirements. This list is not exhaustive, nor is it designed to serve as legal advice.
To schedule a franchise consultation with one of our experts, contact LPJ Legal at (202) 643-6211 or at LPJLegal.com.
Maryland Franchise Registration Overview
- Classification: Registration State
- Initial Registration Fee: $500
- Renewal Fee: $250
- Registration Expiration: At least 15 business days before one year after the initial registration date
- Governing Authority: Securities Division of the Maryland Office of the Attorney General
Maryland Franchise Registration & Renewal Requirements
Maryland is a registration state, meaning anyone intending to sell or offer a franchise in the state must comply with both state and federal regulatory requirements. This includes preparing A Franchise Disclosure Document (FDD) that meets the North American Securities Administrators Association (NASAA) guidelines.
Maryland Franchise Registration & Disclosure Law
To register a franchise in Maryland, franchisors must submit the following documents:
- Franchise Disclosure Document (FDD) with a state cover page
- Franchise Seller Disclosure Form
- Uniform Franchise Registration Application
- Consent to Service of Process
- Franchisor’s Costs and Sources of Funds
- Copies of Advertising and Promotional Materials
- Consent of Accountant
- Guarantee of Performance
These documents, along with a $500 registration fee, must be submitted to the Securities Division, Office of the Attorney General, 200 St. Paul Place, 20th Floor, Baltimore, MD 21202.
Quote: Given the complexity of Maryland’s franchise laws, many franchisors choose to work with an experienced franchise attorney to ensure compliance with registration, renewal, exemption qualifications, and other legal obligations.
Maryland Franchise Renewal Requirements
- Renewal Fee: $250
- Renewal Deadline: At least 15 business days before the one-year anniversary of the registration’s effective date
- Amendment Registration Application Fee: $100
Failure to complete the renewal process within the state’s timeframe may require the franchisor to restart the registration process, incurring the full initial registration fee instead of the lower renewal fee.
Additional Compliance Obligations
Beyond registration and renewal, franchisors in Maryland must comply with additional regulations:
- FDD Disclosure Timing: Franchisors must provide prospective franchisees with the FDD at least 14 days before signing a franchise agreement.
- Advertising Regulations: Any advertising materials must be submitted to the Securities Division at least five days before publication.
- Quarterly Reporting Requirements: Franchisors must file regular reports detailing franchise sales and business activities.
Maryland Franchise Registration Exemptions
Franchising is governed by both state and federal laws, with registration playing a crucial role in determining when and how a franchise can be offered for sale. In Maryland, franchisors must register before selling or offering franchises, a process that can be both time-consuming and costly. However, Maryland provides several exemptions that allow franchisors to bypass the registration process under certain conditions. Understanding these exemptions can enable franchisors to begin selling their franchises sooner.
Quote: Contact LPJ Legal at 202-643-6211 for expert guidance on franchise registration, renewal, and exemption requirements within Washington D.C., Maryland, Virginia, or Georgia.
Key Franchise Registration Exemptions in Maryland
Seasoned Franchisor Exemption
Franchisors with a proven track record and strong financial standing may qualify for an exemption. In Maryland, a franchisor must have a net worth of at least $10 million or be owned at least 80% by a corporation with a net worth of $10 million. Additionally, the franchisor must have had at least 25 franchisees operating in the same business for the past five years. (Md. Code Regs. 02.02.08.10(D))
Large Investment Exemption
This exemption applies when a franchisee is making a significant financial investment, implying they have the business experience and resources to protect their interests. In Maryland, the initial investment must exceed $750,000 to qualify for this exemption. (Md. Code Regs. 02.02.08.10(E))
Nominal Franchise Fee Exemption
Franchises charging only a minimal annual franchise fee may be exempt from registration. In Maryland, the franchise fee must not exceed $100 to qualify. (Md. Code Regs. 02.02.08.10(C))
Sale to Existing Franchisee Exemption
When a franchisor sells an additional franchise to an existing franchisee, registration may not be required if the new franchise is substantially similar to the franchise already owned. (Md. Code Ann., Bus. Reg. § 14-214(b)(2))
Sale by Existing Franchisee Exemption
If a current franchisee is selling their franchise independently, and the franchisor is not actively involved in the transaction, registration is not required. This holds true even if the franchisor has the right to approve or disapprove of the new franchisee. (Md. Code Ann., Bus. Reg. § 14-214(c))
Renewal of Existing Agreement Exemption
If a franchise agreement is being renewed with no interruption in the franchise’s operation, the franchisor may be exempt from registration. (Md. Code Ann., Bus. Reg. § 14-203(c))
Sales by Executors, Trustees, and Judicial Officers Exemption
Sales conducted by executors, administrators, receivers, trustees in bankruptcy, guardians, or conservators are exempt from registration requirements. (Md. Code Ann., Bus. Reg. § 14-214(b)(1))
Institutional Franchisee Exemption
If a franchise is sold to a financial institution such as a bank, trust company, insurance company, or investment firm acting for itself or as a fiduciary, registration is not required. However, the franchise cannot be purchased for resale. (Md. Code Regs. 02.02.08.10(F))
Out-of-State Franchise Exemption
Franchisors selling to non-residents of Maryland, where the franchise will not be operated in Maryland, may qualify for this exemption. The sale must also comply with the laws of the franchisee’s home jurisdiction and Maryland’s anti-fraud laws. (Md. Code Regs. 02.02.08.10(B))
Exemption by Order
In certain cases, the Maryland Securities Commissioner may determine that a franchise sale does not fall within the intent of Maryland’s franchise laws and is not necessary to register for the protection of potential franchisees. (Md. Code Regs. 02.02.08.10(G))
Navigate Maryland’s Franchise Laws with LPJ Legal
Maryland’s franchise laws and regulations are subject to frequent amendments and changes in interpretation. To ensure compliance and avoid legal pitfalls, franchisors are encouraged to work with a dedicated franchise attorney. Contact LPJ Legal today for expert legal assistance tailored to your franchise needs.
The franchise lawyers at LPJ Legal work closely with our clients to help them understand their rights, potential risks, and potential advantages of purchasing a franchise. We have experience in general franchise law, as well as laws and regulations relevant to Maryland and specific industries. We are passionate about providing cost-effective legal guidance to a myriad of franchise types across the state.
