After eight years of filing initial, renewal and amendment franchise registrations with state regulators I am no longer shy about contacting an examiner and asking for clarification on a comment or politely discussing my objections to a requested change to the substance or form of a client’s filing. When I was first starting out in franchising, however, I was very nervous about reaching out and worried about whether I would “bug” or worse yet – offend a state examiner.
Michelle Webster, examiner with the Washington Department of Financial Institutions (Securities Division) set aside those fears when discussing drafting the six most challenging items in the FDD at this year’s ABA Forum on Franchising in New Orleans, Louisiana. During the presentation the first point she made was to urge applicants to call with questions rather than interpret (often incorrectly) what a regulator is looking for when making a comment to a franchise application. At least in the case of Washington, Ms. Webster follows an informal 24 hour response rule and makes every effort to promptly respond to questions from applicants – both by telephone and email.
Contacting a regulator doesn’t just provide clarification saving your client time and money, it may also take the burden off you when it comes to coordinating conflicting requests from state regulators. Ms. Webster also mentioned that when that occurs, many regulators will address those conflicting comments amongst themselves and advance a united front before putting franchisor counsel in the middle.
This is particularly true with “Risk Factors” where regulators acknowledged that states are looking to find uniformity among themselves (especially with common risk factors describing personal guaranty requirements, the inclusion of liquidated damages provisions and risks related to undercapitalized or start-up franchisors) but have not yet a consensus on appropriate Risk Factor language.
Takeaway? Do not hesitate to save yourself a lot of confusion and call a regulator when you have a question.