Regulation A, also referred to as Reg A, provides a small offering exemption from registration for public securities offerings and was updated to be more accessible to small and midsize companies. This change was meant to provide a more effective capital-raising tool while still providing essential protections to investors.

Regulation A is divided into two offering tiers: Tier 1 and Tier 2. Both tiers have their own advantages and distinct requirements.

Tier 1: is for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.

Tier 2: is for offerings of securities of up to $75 million in a 12-month period, with not more than $22.5 million in offers by selling security-holders that are affiliates of the issuer. Companies can choose to proceed under the requirements for either tier for offerings up to $20 million.

Common requirements for both Tier 1 and Tier 2 offerings include certain issuer eligibility criteria (e.g., the issuer must be organized under the laws of a state or territory of the United States or the District of Columbia), bad actor disqualification provisions, and the requirement to file offering statements and reports with the SEC.

However, Tier 2 has additional investor protection requirements compared to Tier 1. For instance, there are limitations on the amount a non-accredited investor can invest in a Tier 2 offering — no more than 10% of the greater of annual income or net worth for individuals and 10% of the greater of annual revenue or net assets at fiscal year-end for entities.

Tier 2 offerings also necessitate audited financial statements and ongoing reports, including annual reports, semiannual reports, and current event reports. One of the main benefits of Tier 2 offerings, though, is that issuers are not required to register or qualify their offerings with state securities regulators, which is a process known as “blue sky laws.” This federal preemption can save issuers time and money.

While Regulation A can be an attractive fundraising tool, companies should carefully consider the costs and benefits before proceeding. They must comply with regulatory requirements and ongoing reporting obligations. Additionally, securities sold in a Regulation A offering, like all securities, carry a risk of litigation or enforcement action if things go wrong. Therefore, it is advisable to seek legal advice when contemplating a Regulation A offering.

The U.S. Securities and Exchange Commission (SEC) has set guidelines to disqualify so-called “bad actors” from participation in securities offerings. These disqualifications apply to individuals or entities with a history of securities law violations or related legal issues. The criteria for disqualification include:

1. Criminal convictions related to securities transactions, false SEC filings, or specific securities-related businesses.
2. Court injunctions or restraining orders related to securities transactions, false SEC filings, securities-related business activities, or obtaining money or property through false representations.
3. Final orders from certain financial regulators barring the individual or entity from associating with a regulated entity, engaging in specific financial business activities, based on violation of antifraud rules, or any postal service false representation order.
4. SEC orders revoking the registration of a regulated person, limiting their activities, or imposing industry, collateral, or penny stock bars.
5. SEC cease-and-desist orders related to the antifraud rules based on fraudulent intent or violations of Section 5 of the Securities Act.
6. Suspension or expulsion from a self-regulatory organization such as the Financial Industry Regulatory Authority (FINRA).
7. For any registrant, issuer, or underwriter named in any registration statement or Regulation A offering statement filed with the SEC, the issuance of a suspension or stop order with respect to such statement, or any ongoing investigation related to these issues.

In simpler terms, individuals or entities with a history of legal issues or violations in securities transactions, as outlined above, could be considered “bad actors” by the SEC and may be barred from participating in securities offerings.

Under Michigan law, innocent misrepresentation is incompatible with the Seller’s Disclosure Act, with the exemption from liability afforded by MCL 565.955(1) with respect to a disclosure made on an SDS. Roberts v Saffell, 280 Mich App 397, 414; 760 NW2d 715 (2008), aff’d 483 Mich 1089; 766 NW2d 288 (2009).

The Seller Disclosure Act requires sellers of residential real estate to disclose certain known defects to potential buyers. The Act requires the seller to disclose defects in the property that are known to them. If a seller fails to make the required disclosures, a buyer has a right to terminate the contract.

In summary, while it is generally not possible to recover damages based on an innocent misrepresentation theory for statements made in a seller’s disclosure statement under the Seller Disclosure Act, there may be other theories of recovery available to buyers in certain circumstances. It is important to consult with an experienced attorney to determine the best course of action.

When a dog bite incident occurs in Michigan, the legal ramifications can be complex and vary depending on the circumstances surrounding the incident. Under Michigan’s Dog Bite Statute, a dog owner is strictly liable for bites inflicted by their dog, regardless of whether the dog had any previous propensity to bite. To establish liability, the injured party must prove that the dog injured the party, that they were lawfully at the location, they did not provoke the dog, and the defendant owned the dog.

One exception to the strict liability rule may apply when the victim was trespassing or otherwise unlawfully on the property when the bite occurred. In such cases, the dog owner might not be held liable for damages, but there are many murky distinctions between being in a place unlawfully or lawfully.

Another interesting facet of Michigan law is that a victim can also bring a common-law negligence claim against the dog owner, in addition to or instead of a claim under the Dog Bite Statute. To succeed in a negligence claim, the plaintiff must demonstrate that the owner knew or should have known of the dog’s aggressive tendencies and failed to take reasonable precautions to prevent the bite.

In the event of a dog bite incident, the statute of limitations in Michigan is generally three years. This means that any legal action against the dog owner must commence within three years from the date of the bite incident.

It’s essential to keep in mind that local ordinances may also come into play in dog bite cases. Many municipalities in Michigan have breed-specific legislation or dangerous dog laws that could influence a case.

In conclusion, dog bite litigation in Michigan is a multifaceted area of law. Whether you are a dog owner seeking to understand your legal responsibilities or a victim of a dog bite incident seeking justice, it’s crucial to consult with a knowledgeable attorney who specializes in this area to help navigate the complexities of Michigan’s dog bite laws.

The Illusion of Simplicity

Occasionally, licensing, distribution, or consulting agreements are formed without awareness of franchise law implications, and these may have risky consequences. In Michigan, where there is limited registration and franchise-specific oversight body, business owners may assume they are free to design informal or creative structures without regulatory scrutiny. But the law is less concerned with what the parties intend, and more concerned with what they’ve actually created.

A telling example involves a company that establishes a network of distributed LLCs—each with a different individual minority owner acting as manager—operating under the same brand name provided by the majority owning company itself. Revenue generated by each LLC is directed entirely through the majority owner’s central business, a fee is paid to itself before being passed back through to its distributed LLC and minority member. While there are oftentimes no formal license or franchise agreements, the elements of brand or mark use, centralized control, and payment are present.

The result is an example of what regulators and courts may classify as a hidden franchise—a franchise in substance, even if not in name. Or, as the saying goes: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

This article explores how hidden franchises arise from such arrangements, with particular attention to Michigan’s legal landscape. Though the state relies on the Federal Trade Commission’s Franchise Rule, it enforces anti-fraud principles through the Michigan Franchise Investment Law. When viewed through this dual lens—federal definition and state enforcement—a seemingly ordinary business structure can trigger a cascade of obligations and liabilities.

The Legal Architecture Behind the Franchise Label

A. The Federal Rule: Form vs. Function

Under the Federal Trade Commission’s Franchise Rule, a franchise is not what the parties call it—it is what the relationship functionally resembles. The test is straightforward on its face but expansive in practice. If a business relationship involves: (1) the right to operate under a trademark or commercial name, (2) significant control or assistance by one party over the business methods of another, and (3) a required payment by the operator to the brand-holder, it is a franchise. Whether that relationship is documented in a single contract or arises from a web of formal or informal agreements is immaterial.

In the distributed LLC scenario described earlier, each sub-entity receives a trade name from the majority owner, operates under that name, and routes all business revenue through the parent entity. The financial funneling and managerial structure imposed by the majority owner, as well as operational oversight, exceeds the definition of significant control. And while no fee is labeled as such, the very act of surrendering all proceeds to a central owner before redistribution meets the elements of fee or payment typically found in franchise arrangements. The entire arrangement (oftentimes designed with the purpose of evading franchising disclosures), in substance, meets the FTC’s definition of a franchise.

B. Common Pitfalls in Hidden Franchise Structures

There are several ways that business owners inadvertently create franchises:

• Trademark Uniformity: Allowing multiple entities to use a shared brand—even without a written license—triggers the first element.

• Centralized Processes: Standardizing operations or requiring approval for decisions can constitute “significant control” or assistance. Operating agreements and services agreements may trigger this element.

• Revenue Streams: Centralizing income or requiring fees for support services can be interpreted as a required payment, even without labeling it as a franchise fee. Billing services and bifurcated ownership interests may trigger this element.

What makes the distributed LLC structure especially vulnerable is the combination of all three elements in an informal wrapper. The lack of written licensing, the implicit approval of majority owners, and the centralized financial flow may have been intended to streamline operations—but they collectively form a disguised or hidden franchise.

C. Safe Harbors and Strategic Structuring

There are, to be sure, legal exemptions that may apply. The FTC Franchise Rule includes carve-outs for fractional franchises, large investors, and certain intra-corporate arrangements. However, these are narrow, technical defenses that require careful compliance. For example, the fractional franchise exemption is only available when the franchisee has substantial prior experience in the relevant business and sales from the franchised product are expected to be a minor portion of the total volume. Most informal LLC setups as described above won’t qualify as the franchised product or service is a majority or entire total volume, as the billing is handled through the branded centralized majority owner’s business.

The safest course of action for any Michigan business attempting to build scalable operations under a unified name is not to avoid the term “franchise,” but to simply analyze the structure early and disclose accordingly. This is especially important when control, coordination, and payment flows are present. Where there’s a duck, the law will hear a quack.

Conclusion

Returning to our example of the distributed LLCs, the structure was likely intended to maintain control under a unified brand in exchange for payment. And bypassing formal franchise documentation while retaining central control, under a unified brand, and routing revenue through a parent entity for payment, these companies step squarely into the terrain of franchise regulation.

In Michigan and beyond, business owners must recognize that a franchise is defined by conduct, not contract labels. Where the essential elements—brand use, payment, and operational control—are present, so too are the obligations of disclosure, registration (where applicable), and potential liability. Ignoring these realities can result in legal exposure ranging from rescission, losing all the brand protections otherwise available for franchisors, and private suits under the Michigan Franchise Investment Law to federal enforcement by the FTC. Ultimately, avoiding the term “franchise” does not avoid the law. Proper structuring and legal review are the only sure means to avoid the costly consequences of a franchise in disguise.