The FTC Franchise Rule: what the federal rule says about selling a franchise
The United States has a federal rule on how franchises are sold. This page reports its definition of a franchise, the disclosure document, the waiting periods and the exemptions, as the rule is worded.
Checked against the sources at the bottom of this page on October 9, 2026. Rules, fees and pay change: the source has the last word.
This page reports what the official source says. It is not legal advice: ask the office named here. The source is Part 436 of Title 16 of the Code of Federal Regulations, the Federal Trade Commission's rule on franchising, read on the Electronic Code of Federal Regulations on October 9, 2026. It covers the offer or sale of a franchise located in the United States or its territories. It says nothing particular about tree work: it applies to any business sold as a franchise.
What the rule means by a franchise
Section 436.1 defines a franchise as a continuing commercial relationship, whatever it is called, with three parts. The franchisee obtains the right to operate a business identified or associated with the franchisor's trademark. The franchisor exerts or has authority to exert a significant degree of control over the franchisee's method of operation, or provides significant assistance with it. And, as a condition of obtaining or starting the franchise, the franchisee makes or commits to make a required payment to the franchisor or its affiliate.
The same section says a required payment does not include payments for reasonable amounts of inventory bought at bona fide wholesale prices for resale or lease. It also defines a financial performance representation as any statement, oral, written or visual, that states a specific level or range of actual or potential sales, income, gross profits or net profits.
The U.S. Small Business Administration describes a franchise in plainer words. In its page on buying a business or franchise, a franchisor sells the rights to a business logo, name and model to a franchisee. It names two common forms: product and trade name franchising, and business format franchising, where the two sides have an ongoing relationship.
The disclosure document and the waiting periods
Section 436.2 says it is an unfair or deceptive act under Section 5 of the Federal Trade Commission Act for a franchisor to fail to give a prospective franchisee its disclosure document at least 14 calendar days before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate. A second period applies if the franchisor changes the terms of the basic franchise agreement on its own and in a material way: the revised agreements must be given at least seven calendar days before signing. Changes that come out of negotiations started by the prospective franchisee do not start that seven day period.
The section also lists what counts as delivery by the date: hand delivery, fax or email; directions for reaching the document on the internet; or a paper or tangible electronic copy sent by first class mail at least three calendar days before the required date.
Section 436.3 says the cover page carries the title "FRANCHISE DISCLOSURE DOCUMENT" in capital letters and bold type. Section 436.4 sets the table of contents, which lists 23 disclosure items in this order; section 436.5 sets what each item must say.
| Items | Subject, as the table of contents lists it |
|---|---|
| 1 to 4 | The franchisor and any parents, predecessors and affiliates; business experience; litigation; bankruptcy |
| 5 to 7 | Initial fees; other fees; estimated initial investment |
| 8 to 11 | Restrictions on sources of products and services; franchisee's obligations; financing; the franchisor's assistance, advertising, computer systems and training |
| 12 to 16 | Territory; trademarks; patents, copyrights and proprietary information; obligation to take part in running the franchise business; restrictions on what the franchisee may sell |
| 17 to 20 | Renewal, termination, transfer and dispute resolution; public figures; financial performance representations; outlets and franchisee information |
| 21 to 23 | Financial statements; contracts; receipts |
What section 436.9 adds
Section 436.9 lists further acts it calls unfair or deceptive. Among them: making a claim that contradicts the required disclosures; and passing on a financial performance representation unless the franchisor has a reasonable basis and written substantiation for it and the representation is included in Item 19 of the disclosure document. A franchise seller must also, on reasonable request, give a prospective franchisee the disclosure document earlier in the sales process than the rule requires.
The exemptions and their amounts
Section 436.8 says the rule does not apply if the franchisor can establish one of several grounds. The money based grounds are set out below, with the figures in the rule as read on October 9, 2026.
| Ground in section 436.8(a) | Amount the rule prints |
|---|---|
| Required payments to the franchisor or an affiliate, from before to within six months after the business starts, are less than | USD 735 |
| Franchisee's initial investment, not counting financing from the franchisor or an affiliate or unimproved land, is at least (with a signed acknowledgment) | USD 1,469,600 |
| Franchisee, parent or affiliates in business at least five years with a net worth of at least | USD 7,348,000 |
Other grounds in the same section are a fractional franchise, a leased department, a franchise covered by the Petroleum Marketing Practices Act, a purchaser with two years as an officer or owner in the franchisor, and a relationship with no written document describing any material term. The rule says the Commission adjusts the money amounts every fourth year using the Consumer Price Index for all urban consumers.
The Federal Register final rule of July 12, 2024 shows how the amounts were set. The Commission based them on the rise in that index between 2007 and 2023, from 207.342 to 304.702, a rise of 46.96 percent. The 2007 base figures were USD 500, USD 1,000,000 and USD 5,000,000. The adjusted amounts took effect on July 12, 2024.
State laws
Section 436.3 requires the cover page to say there may also be laws on franchising in the buyer's state, and that state agencies can say what they are. Section 436.10 is headed "Other laws and rules". This page does not list state franchise laws.
The SBA page, for its part, names the Uniform Franchise Offering Circular, associated rules and regulations, and the contract as things for would-be franchisees to explore, and notes the contract usually benefits the franchisor more than the franchisee. For what the other countries on this site say about starting out, see starting a tree service.
Sources
- Electronic Code of Federal Regulations, Title 16, Part 436, Disclosure Requirements and Prohibitions Concerning Franchising, read October 9, 2026
- Federal Register, Federal Trade Commission final rule 2024-15338, revised monetary thresholds for Franchise Rule exemptions, July 12, 2024, read October 9, 2026
- U.S. Small Business Administration, buy an existing business or franchise, read October 9, 2026