Texas stands out among U.S. states for its unique approach to franchise regulation. Unlike many other states, Texas does not have specific franchise registration laws. Instead, the Lone Star State has implemented business opportunity laws that govern the sale and operation of franchises within its borders.
Key Points:
Texas is not a franchise registration state
The state has enacted business opportunity laws instead
Franchisors must file a Business Opportunity Exemption Notice
The Business Opportunity Exemption Notice Process
Before offering or selling a franchise in Texas, individuals must complete a crucial step:
1. File a Business Opportunity Exemption Notice with the Texas Secretary of State
2. Certify possession of a valid Franchise Disclosure Document (FDD)
3. Ensure FDD compliance with Federal Franchise Rules
Once this one-time exemption notice is filed, franchisors can legally sell franchises throughout Texas.
Texas vs. Other States:
No annual renewal required for exemptions
Address changes require an update filing (no additional fee)
Non-Qualifying Business Opportunities
Not all business opportunities qualify for the franchise exemption. In such cases:
The business opportunity must be registered with the Texas Secretary of State
Submission of a Business Opportunity Registration Form may be required
This form includes all necessary information for business opportunity disclosures
Filing Requirements for Texas Franchises
When submitting the Business Opportunity Exemption Notice (Form 2703), franchisors must provide:
1. Franchise company name and any assumed names of the franchise system
2. Principal address of the franchise company
3. Authorized signature confirming compliance with regulations
4. Filing fee payable to the Secretary of State
Impact on Franchisors and Entrepreneurs
This unique regulatory environment in Texas offers several advantages:
Streamlined process for franchise operations
Reduced bureaucratic burden compared to registration states
Potential for faster market entry
However, it's crucial for franchisors and entrepreneurs to:
Understand the distinction between franchise and business opportunity laws
Ensure full compliance with both state and federal regulations
Seek legal counsel to navigate the nuances of Texas business law
Increased Revenue Threshold and the Discontinuation of the “No Tax Due Report”
The “No Tax Due” threshold for Texas Franchise Tax has been raised substantially—from $1,230,000 to $2,470,000. With this adjustment, if your business’s annualized total revenue stays below $2.47 million, you’re exempt from filing the “No Tax Due Report.” This legislative change, coded in, is designed to alleviate the reporting burden on smaller enterprises.
Considerations for Combined Groups
It’s important to note that for businesses operating within a combined group, the combined total revenue is what counts towards the threshold. Individual members of the group who individually fall below the threshold still need to consider the group’s total revenue when preparing tax documents. This measure prevents larger business entities from avoiding tax liabilities by structuring operations across multiple smaller entities.
Continuing Compliance Obligations
Despite the elimination of the “No Tax Due Report,” the requirement for transparency hasn’t completely disappeared. Businesses whose revenues fall below the new threshold are still required to file either a Public Information or an Ownership Information Report. These reports are crucial as they ensure businesses continue to provide essential information while complying with state regulations.
Texas's approach to franchise regulation through business opportunity laws creates a distinctive landscape for franchisors and entrepreneurs. By understanding these regulations and following the proper filing procedures, businesses can effectively establish and expand their franchise operations in the Texas market.
Seek Professional Advice
Should you have any questions or concerns about the Legal Issues addressed in this blog post, please reach out to Derek Saunders, Keith Strahan, or Richard Armstrong of our firm, shown here: https://lfbrown.law/our-team
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