NASAA releases second proposed Model Franchise Broker Registration Act

On July 28, 2025, the North American Securities Administrators Association (NASAA) issued a second request for public comment on its Model Franchise Broker Registration Act (Model Act). If adopted by NASAA, the Model Act will serve as a template for states to impose a comprehensive registration and regulatory regime on franchise brokers and their individual representatives. The proposal responds to regulators’ and industry stakeholders’ long-standing concerns regarding inadequate oversight of third-party franchise sellers and the recurring use of aggressive or misleading sales tactics.

Below is a summary of the Model Act’s principal features and the practical implications for franchisors, brokers, and other market participants.

Background and policy drivers

• Only two states—New York and Washington—presently require any form of franchise broker registration.
•  State administrators, the FTC, and members of Congress have highlighted complaints alleging hard-sell tactics, unauthorized financial performance claims, and confusion over who the broker represents in a transaction.
•  NASAA’s Franchise and Business Opportunities Project Group originally circulated a draft in May 2024, received more than 200 comment letters, and has now issued a substantively revised draft.

Scope and key definitions

• Franchise Broker – Any person (entity or individual) that “directly or indirectly engages in the business of the offer or sale of a franchise” and receives or is promised compensation from a franchisor, subfranchisor, franchisee, or their affiliates.
  – Exclusions: (i) franchise broker representatives, (ii) franchisors and their affiliates, (iii) officers/employees of franchisors or affiliates, and (iv) existing franchisees whose referral fees do not exceed $5,000 per calendar year.
• Franchise Broker Representative – Any natural person, other than the broker itself, who represents a broker in effecting or attempting to effect the sale of a franchise.   Administrative and clerical personnel are excluded.
• Other Form of Consideration – Captures non-cash benefits such as equity grants, royalty sharing, or contractual buy-outs to prevent evasion of the compensation test.

Registration requirements (Section 4)

• Mandatory state registration – Brokers and representatives must file an application, consent to service of process, and pay prescribed fees before offering or selling franchises in a state.
• Annual expiration and renewal – Registrations expire each December 31 (or other period set by rule) and must be renewed annually.   Representatives’ registrations are valid only while they remain associated with a registered broker.
• Material change amendments – Registrants must promptly amend their filings for material changes; the director may define “material change” by rule.
• Examination, education, and financial Standards – States may impose competency exams, continuing education, insurance, bonding, or net-capital requirements as a condition of registration.   Non-natural-person brokers are exempt from examination and CE requirements.

Prohibited practices (Section 3)

• It is unlawful to offer or sell a franchise in the state unless:
  – the broker is registered,
  –  the representative is registered, and
  –  the franchisor or sub-franchisor uses only registered brokers/representatives.
•  Brokers may not associate with unregistered representatives.

 Mandatory broker disclosure to prospective franchisees (Section 5)

• Before any in-person, virtual, telephonic, or electronic discussion of a specific franchise opportunity, a broker or representative must deliver a concise Disclosure Statement containing:
  – material litigation history;
  –  a description of all categories and ranges of compensation earned in the prior calendar year (e.g., commissions, incentives, equity, royalty sharing); and
  –  any additional information required by rule.
• States may require pre-filing of the disclosure form and NASAA intends to develop a uniform template analogous to the existing Franchise State Cover Sheet.

 Recordkeeping and inspection (Section 6)

• Brokers and representatives must maintain complete books and records of franchise offers and sales for at least five years (or longer if a jurisdiction adopts a greater retention period).
• Records are subject to periodic, special, or “for cause” examinations by the state regulator, and registrants must cooperate fully with onsite or remote inspections.
• If a broker or representative ceases business, the five-year retention obligation continues.

Enforcement, denial, & revocation (Section 4)

• The state regulator may deny, suspend, revoke, or summarily postpone a registration upon findings such as:
  – material misstatements or omissions in an application;
  –  willful violations of the Model Act or related orders;
  –  recent criminal convictions involving franchising, securities, or other financial offenses;
  –  injunctions by courts or agencies;
  –  dishonest or unethical practices (e.g., unauthorized earnings claims, forgery, embezzlement); or
  –  insolvency or obstruction of regulatory examinations.

Fees (Section 7)

• The Model Act authorizes each state to set filing fees for:
  – initial broker registration;
  –  initial representative registration;
  –  annual renewals; and
  –  amendments.

Implementation framework

• The NASAA drafted the Act so it can be:
  – adopted independently by non-registration states; or
  –  integrated into existing franchise registration statutes in the 15 disclosure states with minimal modification.

Practical implications

• Franchisors and Sub-franchisors
  – Must vet their selling networks and ensure that any third-party broker or representative is duly registered.
  –  May need to adjust franchise sales processes and agreements to accommodate new disclosure timing and content requirements.
• Franchise Brokers (Entities)
  –  Should assess whether their current compensation structures (e.g., royalty sharing, equity) trigger registration.
  –  Will need to design compliance systems for recordkeeping, disclosure delivery, renewal monitoring, and continuing education.
• Broker Representatives (Individuals)
  –  Likely to face competency examinations and personal disclosure of litigation history.
• Prospective franchisees
  –  Will receive standardized information on broker compensation and litigation, improving transparency in the franchise sales process.

Comment period and next steps

• Written comments are due August 27, 2025, and must be submitted by e-mail to NASAA’s comment inbox, with copies to the Project Group Chair and Section Co-Chairs. After review of public feedback, the Project Group may further revise the draft before seeking adoption by NASAA’s membership. Comments inbox (nasaacomments@nasaa.org), with copies to Theresa Leets (theresa.leets@dfpi.ca.gov), Bill Beatty (bill.beatty@dfi.wa.gov) and Erin Houston (ehouston@sos.nv.gov). 

The proposed Model Franchise Broker Registration Act marks a significant shift toward heightened regulation of third-party franchise sellers.  Stakeholders should plan now for potential multi-state compliance obligations, develop robust oversight programs, and participate in the rulemaking dialogue to help shape final requirements.

For further information or assistance in preparing comments, assessing exposure, or designing compliance systems, please contact Scott Opincar at sopincar@mcdonaldhopkins.com.