After two years of stakeholder input and comment, on May 4, 2026, the North American Securities Administrators Association (“NASAA”) adopted the Model Franchise Broker Registration Act (the “Act”), a model framework for the regulation of franchise brokers.
Currently, only California, New York, and Washington have registration requirements for independent franchise brokers. Several other states require franchisors to disclose the identity of their brokers, but don’t require the brokers themselves to register. Many states require neither. NASAA’s Act claims to promote consistency and fill gaps in this regulatory landscape by suggesting states adopt its language to directly regulate broker conduct. The Act includes mandatory franchise broker registration, annual renewals, prescribed broker disclosures, fee payment requirements, prohibitions on false earnings claims, and recordkeeping and audit obligations. NASAA argues that states should adopt the Act to provide increased clarity, transparency, and oversight for brokers and their representatives.
Will the Act affect your business?
If adopted by a state, the Act would apply to any third-party business or individual that “directly or indirectly engages in the business of the offer or sale of a franchise and receives, or is promised, a fee, commission, or other form of consideration from a franchisor, subfranchisor, or franchisee, or an affiliate of a franchisor, subfranchisor, or franchisee.” “Other consideration” is broad. It encompasses transactions beyond cash commissions including equity in a franchisor, buy-out rights, and shares of ongoing royalties. Payment does not necessarily need to be tied to successful outcomes or completed transactions; indeed, the mere promise of payment may be sufficient to trigger compliance obligations.
The Act’s prefatory notes suggest that engaging in any of the following activities (whether directly or indirectly) may trigger registration requirements:
- Locating prospective franchisees;
- Acting as an intermediary between prospects and franchisors;
- Acting as an intermediary between franchisors and entities or individuals that offer or sell franchises;
- Evaluating the qualifications of prospective franchisees;
- Assessing the suitability of prospects for particular franchise offerings;
- Managing franchise prospects for franchisors; or
- Providing prospects information about franchise offerings.
It is the actual conduct, not the job title, that determines whether the Act applies. This broad scope may encompass franchise brokers, sales organizations, broker networks, consultants, advisors, business coaches, referral sources, and lead generators, many of whom were previously unregulated in the franchise space.
Key Provisions of the Model Franchise Broker Registration Act
- Mandatory registration: Both franchise brokers and franchise broker representatives must register with state regulators annually.
- Mandatory broker disclosure statements: Brokers must provide a disclosure statement to prospective franchisees before any in-person or electronic communication about a specific opportunity. The statement must describe material litigation, compensation structures, and enforcement history. Franchisors must ensure their internal and external sales agents have their disclosures up to date, accurate, and ready at the first point of contact with a prospective franchisee.
- Prohibition on using unregistered brokers: Franchisors and subfranchisors may not use the services of unregistered franchise brokers. This creates a due diligence obligation for franchisors to verify broker registration status in each applicable jurisdiction, with potential legal exposure if they do not.
- Education and testing: State directors may impose pre-registration education, examination, and continuing education requirements.
- Recordkeeping: Registered brokers must maintain complete books and records related to offers and sales for at least five calendar years, even after ceasing business operations.
- Financial condition: Regulators may deny or revoke broker registration for a variety of reasons, including for broker insolvency. Franchisors may wish to seek financial assurances to mitigate sales disruption risks posed by unexpected regulatory suspensions.
These represent just a few of the provisions of particular interest to those in the franchise industry. Be sure to consult the complete language of the Act text for comprehensive requirements.
Ambiguities and Areas to Monitor
While the Act covers a lot of ground, it still leaves several questions unanswered, including what specific conduct triggers regulatory oversight and how that oversight will be implemented. A few of these ambiguous areas include the following:
- Clerical exception: Individuals performing solely clerical or administrative tasks are excluded from the Act, but the boundary between administration and “effecting” a sale is fuzzy. For example, the clerical act of early call screening and intake might easily cross into the franchise broker act of evaluating a prospective franchisee’s qualifications.
- “Indirect” participation: The Act defines a franchise broker as anyone who “directly or indirectly engages” in the business of the offer or sale, but the Act does not define “indirect” engagement. This results in uncertainty for those in franchise-adjacent businesses such as advertising, lead generation, and listing websites.
- First-contact disclosure logistics: The Act makes it unlawful to engage in any communication (in-person, virtual, telephonic, or electronic) about a specific franchise opportunity unless the broker “first provides” the disclosure statement. This could be difficult in digital environments where franchise opportunities may be mentioned in LinkedIn posts, online listings, or in webinars, where pre-distribution of disclosures may be impractical or receipt may be difficult to confirm.
- Director discretion: The Act is a framework, not a comprehensive scheme, and it punts significant questions to the state’s individual director administering the Act. These include what education and testing will be required, what additional information must be included as part of the franchise disclosures, when registrations expire, and the how recordkeeping and audits will be conducted. Although directors are encouraged to consider uniform standards across states to help facilitate compliance, there is no requirement to do so.
If a state elects to adopt the Act, expect a waiting period while case law and administrative guidance develop to clarify the uncertainty described here.
Takeaways and Looking Forward
Because the model Act has not yet been implemented in any states, franchise industry members need not take any immediate compliance action. However, the adoption does signal a shift in direction of the franchising landscape towards increased oversight of franchisors and increased protections for prospective and active franchisees.
States may elect to adopt the Act in full, in part, or with any number of modifications. The same conduct that constitutes regulated brokerage activity in one state may not in another. This could lead to a patchwork of requirements that make national franchise expansion and operations more complex.
For franchisors and brokers, adoption of the Act will increase compliance costs associated with vetting third-party brokers, revising policies and vendor agreements, completing and verifying accuracy of disclosures, satisfying educational requirements, maintaining records, and responding to enforcement actions and audits. These costs multiply for businesses and individuals operating in more than one state.
Industry response to the Act has been quiet so far, but as the news disseminates and states begin to evaluate potential adoption, we anticipate significant feedback from franchisors and businesses whose activities would be newly subject to regulation. As legislation and regulations develop, stakeholders and those impacted should take advantage of public comment periods to ensure their voices are heard on key issues impacting their businesses. As always, franchisors, brokers, broker representatives, and those in the sales or lead generation space should closely monitor the evolving requirements of each state in which they do business to ensure compliance.
Please reach out to our team of franchise attorneys if you need assistance regarding franchise regulation interpretation, compliance, or developing an approach for handling enforcement actions.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
