Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Maryland eases financial updating requirements for franchise registrations, (Nov 1, 2013)
By John W. Arden, J.D., LL.M.
Franchisor financial statements accompanying applications for initial or renewal registration under the Maryland Franchise Law must be dated within 120 days, under an interpretive opinion/no action position issued today by the Maryland Securities Commissioner. Previously, Maryland required financial statements to be dated within 90 days of an application.
This change, which is effective today, was instituted to reduce compliance burdens on franchisors and their auditors and to make the Maryland rule consistent with the requirements of the FTC franchise disclosure rule, which was changed in 2007 to extend the requirement from 90 to 120 days.
In its Statement of Basis and Purpose supporting the 2007 FTC Franchise Rule, the agency quoted public comments that many franchisors had difficulty obtaining annual financial statements from auditors within the previously-required 90-day period, according to Maryland Securities Commissioner Melanie Senter Lubin. Because most franchisors use a calendar fiscal year, company auditors are usually overwhelmed at the beginning of the fiscal year, given the busy tax season. Since many state franchise regulators had allowed franchisors 120 days to prepare updated disclosures, the FTC found that revising its updating requirement had the potential to reduce compliance burdens on franchisors and to reduce inconsistencies with state updating policies.
The Maryland Securities Division has found that many franchisors file financial statements that are dated more than 90 days before the date of the franchise registration application but less than the 120 days allowed under the FTC franchise rule and the franchise law of several states. Requiring updates to these financial statements has caused delays in registration, especially in March and April, when the majority of franchisors file renewals, according to the interpretive opinion/no action letter.
Adopting a 120 day rule promotes greater uniformity with federal and state disclosure requirements and is not inconsistent with the purposes of the Maryland Franchise Law or contrary to the public interest or the protection of prospective franchisees, in the Securities Commissioner’s view.
Questions regarding this change should be directed to Deputy Securities Commissioner Dale E. Cantone at dcanton@oag.state.md.us.
News: FranchisingDistribution MarylandNews