Expanding into the United States is a major opportunity for international brands. The US remains one of the largest and most franchise-friendly markets in the world.
Many foreign businesses entering the US choose franchising as their primary expansion model. However, US franchise law is highly regulated, and compliance mistakes can be expensive.
This guide explains what non-US businesses need to know before launching a franchise system in the United States.
Executive Summary
What Is Franchising?
Franchising is a method of business expansion in which a company (the franchisor) grants an independent operator (the franchisee) the right to operate a business under the franchisor's brand, system, and trademarks in exchange for fees.
Rather than opening company-owned locations, the franchisor licenses its business model to local operators who invest their own capital to establish and run branded locations.
The Three Legal Elements of a Franchise in the United States
Under US law, a business relationship is typically considered a franchise when three elements are present:
- Trademark License — The franchisee operates under the franchisor's trademark or brand.
- Significant Control or Assistance — The franchisor provides meaningful operational control or business assistance. This may include training, site selection support, marketing systems, operational manuals, or standardized procedures.
- Required Fee — The franchisee pays a required fee, directly or indirectly. This includes initial franchise fees, royalties, marketing contributions, or other mandatory payments.
If these three elements exist, the arrangement is likely a franchise under US law, even if it is labeled differently in the contract.
How Franchising Differs From Other Expansion Models
Franchising is distinct from:
- Company-owned expansion, where the parent company owns and operates all locations
- Distribution agreements, where distributors sell products but do not operate branded systems
- Licensing agreements, where intellectual property is licensed without significant operational control
The key distinguishing factor in franchising is the combination of brand use, operational control, and fee structure.
Why Franchising Is Popular in the United States
The United States has one of the most developed franchise markets in the world. Franchising is widely used in sectors such as:
- Food and beverage
- Retail
- Hospitality
- Fitness
- Education
- Business services
For foreign businesses entering the US market, franchising can provide:
- Faster geographic expansion
- Local market knowledge through franchisees
- Shared financial risk
- Scalable brand growth
Why the Legal Definition Matters
Many foreign companies unintentionally create a franchise under US law without realizing it. Even if an agreement is called a "license" or "distribution agreement," US regulators will examine the substance of the relationship.
If the three elements of franchising are present, federal and state franchise laws will apply, including disclosure and registration requirements.
Understanding what legally constitutes franchising is the first step in structuring a compliant US expansion strategy.
US Franchise Law Operates at Two Levels
Foreign businesses must understand that US franchise regulation exists at:
A. Federal Level — The FTC Franchise Rule
The Federal Trade Commission (FTC) requires franchisors to prepare and deliver a compliant:
Franchise Disclosure Document (FDD)
The FDD must be provided to a prospective franchisee at least 14 days before signing or payment.
The FTC Rule requires disclosure, but it does not require government approval.
B. State Level — Registration States
Many US states require franchisors to:
- File their FDD with a state regulator
- Obtain registration approval before offering or selling franchises
- Renew filings annually
You cannot legally sell franchises in those states until registration becomes effective.
Controlling Law
Foreign businesses establishing or selling franchises in the United States are subject to a combination of federal and state regulatory regimes. Franchise compliance is not governed by a single statute, but by overlapping disclosure, registration, and investor protection frameworks.
The principal controlling laws include the following:
Federal Franchise Disclosure Law (FTC)
At the federal level, franchising is regulated under the Federal Trade Commission Franchise Rule, codified at:
- 16 C.F.R. Part 436 (Disclosure Requirements and Prohibitions Concerning Franchising)
The FTC Franchise Rule requires franchisors to prepare and deliver a compliant Franchise Disclosure Document (FDD) to prospective franchisees at least 14 calendar days before any agreement is signed or any payment is made. The FTC rule applies nationwide and governs the core disclosure obligations of franchisors, including foreign-based systems offered in the United States.
State Franchise Registration and Disclosure Laws
In addition to federal disclosure rules, many states require franchisors to register their franchise offering before offering or selling franchises within the state. These laws are commonly administered through state securities or financial regulators.
Examples include:
- California Franchise Investment Law (Cal. Corp. Code § 31000 et seq.)
- New York Franchise Sales Act (N.Y. Gen. Bus. Law Art. 33)
- Illinois Franchise Disclosure Act of 1987 (815 ILCS 705/1 et seq.)
- Maryland Franchise Registration and Disclosure Law (Md. Bus. Reg. Code § 14-201 et seq.)
- Washington Franchise Investment Protection Act (RCW 19.100)
These statutes typically require state filing, review, and approval of the franchisor's FDD before franchise sales may occur.
State Relationship and Termination Laws
Certain states impose additional legal restrictions governing the ongoing franchise relationship, including termination, renewal, and transfer rights. These laws may apply even in non-registration states and can significantly affect franchise enforcement strategy.
Securities Law Considerations (SEC and State Blue Sky Laws)
Although franchise sales are generally regulated under franchise-specific laws, certain franchise structures may also implicate federal or state securities regulation, particularly where the offering resembles a passive investment.
Relevant authorities include:
- Securities Act of 1933 (15 U.S.C. § 77a et seq.)
- Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.)
- SEC guidance on the definition of an "investment contract" under SEC v. W.J. Howey Co., 328 U.S. 293 (1946)
If franchise offerings are marketed primarily as investment opportunities with minimal operator involvement, they may risk being treated as securities offerings, triggering additional SEC and state "blue sky" compliance obligations.
Practical Importance for Foreign Businesses
Because franchise regulation in the United States is governed by multiple overlapping federal and state regimes, foreign franchisors must ensure that their US expansion strategy is compliant not only with the FTC Franchise Rule, but also with state registration requirements and, in certain structures, securities law principles.
Foreign companies should seek integrated legal guidance before marketing or selling franchise locations in the United States.
Who Is Required to Register a Franchise System?
Foreign businesses expanding into the United States through franchising should understand that franchise registration is not optional in many jurisdictions.
A company is generally required to register its franchise system in a US "registration state" if it is offering or selling franchise locations in that state.
Registration requirements typically apply when:
- You are granting investors or operators the right to open locations under your brand or trademark
- You provide significant operational control, training, or a standardized business system
- The franchisee pays a required fee, such as an initial franchise fee, royalties, or marketing contributions
- The franchise is being marketed, offered, or sold in a state that requires registration (such as California or New York)
In other words, if a foreign company is expanding into the US by "selling locations" to local operators under a branded system, it is very likely operating as a franchisor under US law.
Registration is required before sales can occur in many states, and failure to comply may result in enforcement actions, penalties, and franchisee refund claims.
Because franchise regulation is both federal and state-based, foreign businesses should develop a multi-state compliance strategy before launching a US franchise rollout.
Key Franchise Registration States
Registration is typically required in:
- California
- New York
- Illinois
- Maryland
- Virginia
- Washington
- Minnesota
- Michigan
- Wisconsin
- Indiana
- Hawaii
- North Dakota
- South Dakota
- Rhode Island
Each state has its own review process and timeline.
California and New York are generally the most rigorous.
What Legally Counts as a Franchise in the US?
A franchise typically exists when:
- The franchisee uses your trademark
- You provide significant control or operational assistance
- The franchisee pays a required fee
If you are selling branded locations and charging fees or royalties, you are likely creating a franchise under US law.
Foreign headquarters does not create an exemption.
US law applies if the franchise is offered or sold in the United States.
Registration vs Non-Registration States
| Category |
Registration States |
Non-Registration States |
| Must file FDD with regulator |
Yes |
No |
| Government review required |
Yes |
No |
| Can sell immediately after preparing FDD |
No |
Yes (after federal compliance) |
| Typical approval time |
15–60 days |
Not applicable |
| Risk of enforcement if non-compliant |
High |
Moderate (federal enforcement) |
For foreign businesses planning national expansion, a phased rollout is often required.
Common Mistakes Non-U.S. Businesses Make
- Copying a non-US franchise agreement without US compliance
- Failing to register before selling in California or New York
- Making informal earnings representations to investors
- Underestimating state relationship laws
- Ignoring tax structuring for royalty flows
- Separating franchise planning from immigration strategy
US franchise regulation is technical and actively enforced.
Corporate and Tax Structuring for Foreign Franchisors
Foreign companies typically need:
- A US entity (often Delaware-based)
- Cross-border tax planning for royalties and fees
- Intellectual property licensing strategy
- Transfer pricing alignment
- US banking and compliance setup
Franchise expansion must align with corporate structure.
Immigration Considerations for Founders and Executives
Foreign franchisors often require US presence for:
- Establishing the US entity
- Overseeing rollout
- Training franchisees
- Managing compliance
Common visa options include:
- L-1 intracompany transfer
- E-2 treaty investor
- EB-1C multinational manager
- O-1 extraordinary ability
Immigration timing must be coordinated with franchise registration and corporate formation.
Enforcement Risks
Selling franchises in a registration state without approval may result in:
- Civil penalties
- Government investigations
- Franchisee rescission claims
- Personal liability in some jurisdictions
- Restrictions on future sales
Franchise compliance is not optional.
Integrated Expansion Strategy
For foreign businesses, franchising is not just a contract issue.
It involves:
- Franchise disclosure compliance
- Multi-state regulatory filing
- Corporate structuring
- Tax planning
- Intellectual property protection
- Immigration strategy
- Long-term relationship law planning
Expansion into the US should be treated as an integrated legal project, not a document exercise.
Fashion Franchising
While our firm assists clients through our presences in Milan, Paris, London, New York and Los Angeles we are known as a firm that assists new brands, designers and talents emerging from markets such as Vietnam, India and China.
Our clients frequently use franchise systems to enter the U.S. and our firm is used to assisting them.
Example Indian Client: Franchised Fashion Marketing
Our Client:
Our Client is an Indian fashion designer and clothing manufacturer looking to expand their footprint globally.
The Business Goal:
Our client wanted to grow its presence by partnering with investors from all over the world who are interested in owning and operating a retail clothing business.
The Solution:
Registering a franchise system in target U.S. states allowed our client to establish a network of stores across the U.S. Each store enabled a non-U.S. investor to obtain either an E-2 or L-1 visa to come to America and operate the business.
Final Considerations for Non-US Businesses
Before offering franchise locations in the United States, foreign companies should ask:
- Are we properly structured in the US?
- Have we prepared a compliant FDD?
- Do we need state registration before marketing?
- Are our royalty and fee flows tax-efficient?
- Do our executives have the correct immigration status?
- Are we prepared for multi-state compliance?
The US is a highly attractive market — but also one of the most regulated franchise environments globally.
Proper planning at the outset reduces risk, protects the brand, and enables sustainable expansion.
Frequently Asked Questions For Foreign Businesses Franchising in the United States
1. Can a foreign company establish a franchise system in the United States?
Yes. A non-US business can legally establish and sell franchises in the United States. However, it must comply with US federal franchise disclosure laws and, in many states, complete franchise registration before offering or selling locations.
There is no exemption simply because the franchisor is headquartered abroad.
2. Do foreign franchisors need to register in every US state?
No.
Franchise registration is required only in certain "registration states," such as California, New York, Illinois, Maryland, and others.
In non-registration states, compliance with federal disclosure law (the FTC Franchise Rule) is generally sufficient.
However, national expansion usually requires a coordinated multi-state compliance strategy.
3. What is a Franchise Disclosure Document (FDD)?
An FDD is a legally required disclosure document that must be provided to a prospective franchisee at least 14 days before signing any agreement or paying any fee.
It includes detailed information about:
- Fees and royalties
- Investment requirements
- Obligations of the franchisee
- Background of the franchisor
- Litigation history
- Territory rights
- Financial performance representations (if made)
All foreign franchisors selling in the US must prepare a compliant FDD.
4. What happens if we sell a franchise in California or New York without registering?
Selling a franchise in a registration state without approval may result in:
- Civil penalties
- Government enforcement actions
- Franchisee rescission claims (refund demands)
- Possible personal liability for officers
- Restrictions on future franchise sales
Registration must be effective before offering or selling franchises in those states.
5. How long does franchise registration take in the United States?
Registration review timelines vary by state.
In major states such as California and New York, approval may take approximately 30 to 60 days, depending on regulator comments and required revisions.
Some other states may approve more quickly, often within 15 to 30 days.
A phased rollout strategy is often advisable for foreign businesses.
6. Can we use our existing international franchise agreement in the US?
Not without modification.
US franchise law requires specific disclosures and contract structures that differ significantly from many non-US jurisdictions.
Most international franchise agreements must be adapted to comply with US federal and state law.
7. Do we need a US company to franchise in the United States?
In most cases, yes.
Foreign franchisors typically form a US entity to:
- Issue franchise agreements
- Receive royalties
- Limit liability
- Structure tax planning
- Align with immigration strategy
Corporate structure should be coordinated with franchise rollout.
8. Does franchising support US immigration options for founders or executives?
Often, yes.
Foreign executives involved in establishing and managing a US franchise system may qualify for immigration pathways such as:
- L-1 intracompany transfer
- E-2 treaty investor
- EB-1C multinational manager
- O-1 extraordinary ability
Immigration planning should be aligned with corporate formation and franchise launch timelines.
9. Can we advertise franchise opportunities before registration is approved?
In registration states, offering or advertising franchise sales before approval may violate state law.
Marketing strategies must be carefully coordinated with registration status.
10. Are earnings claims allowed when selling franchises in the US?
Earnings or financial performance representations are permitted only if properly disclosed in the FDD and supported by documented data.
Informal or undocumented revenue promises can trigger regulatory enforcement and litigation risk.
Foreign franchisors must be particularly cautious in this area.
11. What are "franchise relationship laws"?
Some US states impose additional rules governing:
- Termination rights
- Non-renewal
- Transfers
- Good faith obligations
These laws affect long-term franchise strategy and should be considered during agreement drafting.
12. What is the biggest compliance mistake foreign franchisors make?
The most common errors include:
- Selling before state registration approval
- Copying non-US agreements without US compliance
- Making informal earnings claims
- Failing to integrate tax and corporate structuring
- Separating franchise planning from immigration strategy
US franchise regulation is technical and actively enforced.
Frequently Asked Questions: Expanding into the United States Through Franchising
1. Can a non-U.S. company legally sell franchise locations in the United States?
Yes.
A company headquartered outside the United States may legally establish and sell franchise locations in the U.S. However, it must comply with:
- The Federal Trade Commission Franchise Rule, 16 C.F.R. Part 436
- Applicable state franchise registration and disclosure statutes in registration states
There is no exemption simply because the franchisor is based abroad. If a franchise is offered or sold in the United States, U.S. law applies.
2. What legally counts as a franchise under U.S. law?
Under the FTC Franchise Rule, a commercial relationship is generally considered a franchise when three elements are present:
- The franchisee operates under the franchisor's trademark
- The franchisor exercises significant control or provides significant assistance
- The franchisee pays a required fee
See 16 C.F.R. § 436.1(h).
Even if the agreement is labeled a "license" or "distribution agreement," regulators will analyze the substance of the relationship.
3. Do we need a Franchise Disclosure Document (FDD) to sell franchises in the U.S.?
Yes.
The FTC Franchise Rule requires franchisors to prepare and deliver a compliant Franchise Disclosure Document at least 14 calendar days before signing any agreement or accepting any payment.
See 16 C.F.R. § 436.2(a).
The FDD must comply with the disclosure requirements outlined in 16 C.F.R. §§ 436.3 through 436.5.
This obligation applies nationwide.
4. Do we need to register our franchise in every U.S. state?
No.
Franchise registration is required only in certain "registration states." Examples include:
- California — Cal. Corp. Code § 31000 et seq.
- New York — N.Y. Gen. Bus. Law Art. 33
- Illinois — 815 ILCS 705/1 et seq.
- Maryland — Md. Bus. Reg. Code § 14-201 et seq.
- Washington — RCW 19.100
In these states, a franchisor must file and receive approval of its FDD before offering or selling franchises in the state.
Non-registration states generally require compliance only with federal disclosure law.
5. What happens if we offer or sell franchises before state registration is approved?
Selling a franchise in a registration state without approval may trigger:
- Civil enforcement actions
- Administrative penalties
- Franchisee rescission claims
- Injunctive relief prohibiting further sales
For example, under California Franchise Investment Law, Cal. Corp. Code § 31110 makes it unlawful to offer or sell a franchise without registration.
Many states also allow franchisees to seek rescission and damages.
6. Can we advertise franchise opportunities before registration is approved?
In registration states, offering or advertising franchise sales before registration becomes effective may violate state law.
For example, New York General Business Law § 683 prohibits offering or selling franchises prior to filing and approval.
Marketing campaigns, broker relationships, and online advertising must be coordinated with registration status.
7. How long does franchise registration take in the United States?
Registration timelines vary by state.
In major registration states such as California and New York, approval often takes approximately 30 to 60 days, depending on regulator comments and required revisions.
The FTC Franchise Rule itself does not require government approval. It requires only disclosure compliance under 16 C.F.R. § 436.2.
8. Can we use our existing international franchise agreement in the U.S.?
Generally no, not without substantial modification.
U.S. franchise law requires:
- Specific disclosures mandated by 16 C.F.R. Part 436
- State-specific addenda in registration states
- Compliance with state relationship laws governing termination and renewal
For example, certain states impose restrictions on termination without good cause. See, for example, Minn. Stat. § 80C.14.
Most non-U.S. agreements must be restructured to comply with U.S. federal and state requirements.
9. Do we need a U.S. company to franchise in the United States?
In most cases, yes.
Foreign franchisors typically form a U.S. entity to:
- Issue franchise agreements
- Receive royalties
- Limit liability exposure
- Structure cross-border tax planning
While not explicitly required by the FTC Rule, corporate structuring is essential for operational, tax, and immigration purposes.
10. Does franchising support U.S. visa options for founders or executives?
In many cases, yes.
Common immigration pathways include:
- E-2 treaty investor visa — INA § 101(a)(15)(E)(ii)
- L-1 intracompany transferee visa — INA § 101(a)(15)(L)
- EB-1C multinational manager immigrant category — INA § 203(b)(1)(C)
If a foreign company establishes a qualifying U.S. entity and sends a managerial or executive employee to oversee operations, L-1 classification may be appropriate.
If a treaty national makes a substantial investment and directs the enterprise, E-2 classification may be available.
Immigration planning must align with corporate formation and franchise rollout.
11. Can a franchise investor obtain an E-2 visa by buying one of our franchise locations?
Potentially, yes.
The E-2 visa requires:
- Nationality from a treaty country
- A substantial investment
- An active commercial enterprise
- The investor to develop and direct the enterprise
See INA § 101(a)(15)(E)(ii); 8 C.F.R. § 214.2(e).
Franchise models are frequently used for E-2 cases because they provide a structured business framework and defined investment requirements.
However, the business must not be marginal and must generate more than minimal living income.
12. Can franchising support an L-1 new office visa?
Possibly.
Under 8 C.F.R. § 214.2(l)(3)(v), a "new office" L-1 petition requires:
- Secured physical premises
- A qualifying corporate relationship
- A credible business plan
- Evidence that the U.S. entity will support an executive or managerial role within one year
If the U.S. franchisor entity is genuinely building a system and hiring staff, L-1 classification may be viable.
However, the U.S. entity must demonstrate operational growth beyond a shell structure.
13. Is selling franchise locations treated as securities fundraising?
Typically no, but in certain structures it can raise securities concerns.
If a franchise offering resembles a passive investment with profits derived primarily from the efforts of others, regulators may apply the "investment contract" analysis under SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
Relevant statutes include:
- Securities Act of 1933, 15 U.S.C. § 77a et seq.
- Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.
Franchise offerings marketed as hands-off investments must be carefully structured to avoid securities classification.
14. Can we offer area development or master franchise rights?
Yes.
Multi-unit and master franchise structures are common, but they trigger layered disclosure and regulatory considerations under 16 C.F.R. Part 436.
In some states, master franchise arrangements may require separate registration filings.
Careful structuring is essential.
15. What is the biggest compliance mistake international brands make?
The most common errors include:
- Selling before state registration approval
- Making informal earnings claims outside the FDD
- Copying non-U.S. agreements without compliance review
- Failing to coordinate franchise law, corporate structure, tax planning, and immigration
U.S. franchise regulation is both federal and state-driven and is actively enforced.
See 16 C.F.R. Part 436 and applicable state franchise investment laws.
