Maryland Franchise Law Explained: How the FTC Franchise Rule Applies

Buying or selling a franchise in Maryland means answering to two sets of rules at once: federal law and state law. Anyone offering a franchise to a Maryland resident, or operating a franchised business in the state, needs to understand how these systems work together. This article covers what Maryland requires, how it builds on the federal Franchise Rule, and what franchisors and franchisees should watch for before signing anything.

What Is Franchise Law Under Maryland Law?

A franchise generally involves three things: use of the franchisor's trademark, a marketing plan or system controlled by the franchisor, and a required fee paid by the franchisee. Maryland defines "franchise" broadly, and an arrangement does not need to be labeled a franchise to be treated as one under state law.

The Maryland Franchise Registration and Disclosure Law is enforced by the Securities Division of the Maryland Attorney General's Office, which reviews filings, investigates complaints, and can act against unregistered or fraudulent franchise offers.

The Federal Franchise Rule vs. Maryland's Franchise Law

What the FTC Franchise Rule Requires

The Federal Trade Commission's Franchise Rule sets a baseline that applies in every state. It requires franchisors to give prospective franchisees a Franchise Disclosure Document, commonly called an FDD, before any sale takes place. The franchisee must receive the FDD at least 14 days before signing an agreement or paying any money. If the franchise agreement changes materially after that point, a separate 7-day waiting period usually applies before signing.

How Maryland Goes Further Than Federal Law

Maryland does not stop at disclosure. It is one of a smaller group of states that also requires registration. Under the Maryland Franchise Registration and Disclosure Law, a franchisor must register its FDD with the Securities Division before offering or selling a franchise in Maryland. The FDD filed in Maryland must also include a state-specific addendum addressing disclosures required under Maryland law. In practice, this means a franchisor can be fully compliant with the federal Franchise Rule and still be in violation of Maryland law if it has not registered.

Who Is Affected by Maryland's Franchise Law?

Maryland's registration requirement has a wide reach. It applies when the franchisor is based in Maryland, the franchisee is a Maryland resident, the franchised business will operate in Maryland, or the offer to sell is made, directed to, or accepted within the state. An out-of-state franchisor selling to a Maryland resident is still subject to Maryland law, even without a physical location here. This affects franchisors expanding into the state, prospective franchisees evaluating an opportunity, and existing franchisees handling renewals, terminations, or disputes.

Registration Requirements

To register, a franchisor submits a Uniform Franchise Registration Application, known as Form A, along with the FDD and a $500 filing fee. The FDD must meet FTC Franchise Rule standards and NASAA disclosure guidelines, plus Maryland's addendum requirements. Registration is not automatic — a state examiner reviews the application, and franchisors must renew annually to keep selling franchises in Maryland.

Step-by-Step: How Maryland Franchise Registration Works

Costs, Penalties, and Timelines

Registration carries a $500 initial fee, with separate costs for renewal. If a franchisor's financials show limited capital, Maryland may require added protection for franchisees, such as deferring the initial franchise fee, escrowing funds, or posting a bond.

Selling a franchise in Maryland without registering carries real consequences: franchisees may have rescission rights, and the state can pursue enforcement action. Certain material changes, such as terminating more than 10 percent of Maryland franchisees within a three-month period, also trigger an amendment filing rather than waiting for the annual renewal.

Common Mistakes Franchisors and Franchisees Make

Recent Updates in Maryland Franchise Law

The Maryland Attorney General's Office has continued refining its renewal process, including a fast-track program with set annual deadlines for filing updated disclosure documents. Franchisors should confirm current filing dates directly with the Securities Division rather than relying on prior-year timelines, since requirements can change.

How a Lawyer Can Help

Franchise law in Maryland involves overlapping federal and state requirements, strict deadlines, and disclosure documents that must be accurate down to the line item. A lawyer can help franchisors prepare a compliant FDD and manage registration and renewal, and can help prospective franchisees understand what an agreement actually requires before money changes hands. Hodgson Law Firm, PLLC assists clients with business formation and contract matters in Maryland, including agreements tied to franchising.

Frequently Asked Questions

Key Takeaways

Franchising in Maryland means satisfying both the federal Franchise Rule and the state's own registration law. Franchisors need a compliant, registered FDD with the Maryland addendum, and franchisees benefit from using the full disclosure period to review the agreement carefully. Given the overlapping deadlines and penalties involved, working with an attorney familiar with Maryland franchise law can help both sides avoid costly missteps. Contact Hodgson Law Firm, PLLC at +1 203-529-7372 to discuss a franchise matter in Maryland.