Ins and Outs of Suspending Franchise Sales

In several states that require franchise registration, franchisors should suspend franchise sales while an amendment or renewal application is pending with the state.  Franchisors commonly suspend franchise sales pending registration in most states that require franchise registration. But California and New York each offers a unique and very different approach than a blackout or suspension of sales.

California takes an approach that is eminently practical.  In California, a franchisor may deliver to a prospect the franchise disclosure document (“FDD”) as filed with state for renewal or amendment together with a written statement that the filing has been made but it has not been reviewed by the examiner and is not effective, and that the franchisor will deliver to the prospect an effective FDD showing any further revisions at least 14 days before any agreement is signed or any consideration is paid. (Cal. Corp. Code §31107.) This approach seems to be one that would not be…