Michelle Webster, a franchise financial legal examiner with the State of Washington Department of Financial Institutions, took a few minutes at the start of the ABA Forum on Franchising’s Annual Meeting seminar on disclosures to discuss the registration of franchise brokers in Washington. The main takeaway? If you sell franchises in Washington, then there is a good chance you need to register.
Third parties selling franchises on behalf of a franchisor must register as franchise brokers. The Washington Franchise Investment Practice Act prohibits a franchise broker from offering or selling franchises in Washington unless the seller is registered separately with the Washington Securities Division. Franchisors, subfranchisors and their respective officers, managers, members, directors and employees are excluded from the broker registration requirements. However, Ms. Webster reminded attendees that employees of an affiliate “no matter now integrated the franchisor and its affiliated companies may be.” She explained the common example of where a franchise system offers multiple brands operated under separate legal entities, then employees of an affiliate, subsidiary or parent of the franchisor must be registered with the Washington Securities Division as a broker for all of the brands where the seller is not employed.
Remember that if you, as a franchisor, engage franchise brokers in the State of Washington, then make sure they are separately registered or else you will receive a comment letter. The Revised Washington Code declares it unlawful for any franchisor, subfranchisor, or franchisee to employ a franchise broker unless the franchise broker is registered. Therefore, it is important to make sure that anyone selling on behalf of your franchise system is registered or exemption. The initial application fee is $50 and there is a $25 annual renewal fee. The standard form can be accessed here [PDF] or you can apply online here.