Each franchisor must renew the registration of its franchise disclosure document (FDD) annually. The rule in most registration states, as well as under the FTC’s Franchise Rule, which governs the sale of franchises in the non-registration states, is that a franchisor must update its FDD within 120 days of its fiscal year end, or discontinue selling franchises. California and Hawaii, both of which are registration states, require renewal applications to be filed within 110 days and 90 days of a franchisor’s fiscal year end, respectively. If a franchisor fails to file its renewal application on time, its registration will expire and its application will no longer be treated as a renewal; it will be treated as a new application–which will cause a delay in its approval, a “gap period” in the franchisor’s franchise registration and an increase in filing fees and legal costs. Moreover, a late renewal application and unintended registration expiration will significantly raise the potential for franchise sales violations during the “gap period,” a problem all franchisors must avoid.
Most California franchisors schedule their fiscal year end to coincide with the end of the calendar year (December 31st). Therefore, the California Department of Corporations (DOC) will receive thousands of renewal applications on or about April 20th of next year. Due to the sheer volume of applications and the DOC’s personnel cutbacks, franchisors that miss that date should expect to experience a significant “gap” in their California registrations. On the other hand, franchisors that file their renewal applications at least 15 business days before their expiration dates will benefit from automatic renewal, provided their applications are complete and they have paid the proper fees.
We will send out renewal packets to our franchisor clients before December 31 and ask that they provide the necessary information to us by February 1st, even if their 2012 audited financial statements are not completed by that date. That said, delayed renewal filings often occur because the franchisor has not received its audited financial statements from its auditor. To avoid such a delay, get in touch with your auditor to determine what information he or she will need, and schedule your 2012 audit now. Also, review last year’s FDD. Note any changes that you would like to make, and collect the numbers for your Item 20 charts now. Getting started early makes the difference!