NASAA Implements E-filing Procedures for FDD Filings
In a step aimed at eventually allowing franchisors to make one filing of their disclosure documents for all states, the North American Securities Administrators Association (“NASAA”) has expanded its Electronic Filing Depository (“EFD”) beyond securities filings to now accept state franchise filings. The EFD system will allow filers to submit multiple state filings and pay filing fees in one place. Although not all registration and business opportunity states have agreed at this time to accept filings via the EFD system, filers will likely find that this system will create efficiency in the filing process.
The expansion of the EFD system was a major initiative to streamline the state franchise filing process initiated by NASAA in late 2018. Larkin Hoffman was one of the only law firms, if not the only firm, to meet with NASAA’s programmers to discuss the needs of franchisors. This system will allow filers to:
Submit multiple state franchise filings in one place
Upload multiple documents and select which states will receive each document
Submit different applications by state (e.g. initial registration applications, exemptions, renewals, advertising filings, etc.)
Make payments in a single transaction
As with all changes, there are still a few items that have yet to be resolved, first and foremost the fact that not all states have “bought-in” to the concept of accepting filings via EFD. As of May 27, 2020, according to NASAA’s UFT Acceptance Matrix Chart, the following franchise registration states are accepting EFD filings: Hawaii, Maryland, Minnesota, North Dakota, Rhode Island, South Dakota, and Virginia. It is hoped that with NASAA’s Franchise Project group meeting later this month, representatives from other states will be convinced to join the others in accepting filings in this manner. There is an additional system use fee to use the platform, but that cost is likely to be more than offset by the savings of not having to submit separate filings in each state that accepts filings through this system. An additional benefit is that this centralized e-filing system will also make the filing process eco-friendlier, as it cuts down on the amount of paper, physical media, and shipping associated with physical filings. As of now, no state is requiring that franchise submissions be made through the EFD system, but this could also change in the future.
The EFD system is now available Monday through Friday (except Federal holidays) from 6:00 a.m. – 11:00 p.m. ET. However, most states have a cut off time for timely filings. For example, Indiana requires that filings be submitted by 5:00 p.m. ET, and what is yet to be resolved is whether Indiana would consider a filing timely if the filing is submitted after 5:00 p.m. ET via the EFD system. Conversely, in Minnesota a filer has until 11:59 p.m. CT for a submission to be considered filed as of that day, but the EFD system will be unavailable after 10:00 p.m. CT. To further complicate things, the EFD system does not account for state holidays. Filers will need to wait for further clarification or proactively reach out to examiners for clarification on these timing issues.
As of now, NASAA currently keeps submissions private. What this means is that as more states opt-in and more filings are submitted via EFD, franchisors may lose access to view their competitors’ FDDs. There are currently three states that offer complimentary online FDD access; as more filers use the EFD system this will likely pose a challenge to obtain updated competitors’ FDDs for benchmarking purposes. On the other hand, for franchisors that would prefer their competitors not obtain easy access to their FDDs, this challenge may be considered a benefit.
It is hoped by NASAA, and by most franchise practitioners and franchisors, that this is the first step toward a single national filing system. It will not replace the individual state reviews, but it could still simplify the annual filing process for all franchisors, perhaps as early as next year.