This article explains requirements for a franchisor starting a franchise in Minnesota. If you buying a franchise, visit tips on buying a franchise in Minnesota.
Item 23: Receipts
Like the UFOC Guidelines, the amended Rule requires franchisors to obtain a signed receipt for the disclosure document furnished to each prospective franchisee. To facilitate electronic disclosures, the definition of “signature” is very broad, including any means by which a franchisee can authenticate his or her identity. It includes not only a handwritten signature, but the use of security codes, unique passwords, electronic signatures, or similar means of authentication.
Accordingly, the amended Rule specifically permits a prospective franchisee to “sign” a disclosure document receipt electronically. For example, a prospective franchisee might “sign” the receipt page of a disclosure document by entering a unique password provided by the franchisor.
When preparing the receipt, franchisors must follow the form of the receipt set forth in Item 23. In addition, Item 23 adopts the current industry practices of including two copies of the receipt at the end of the disclosure document: one that the franchisee retains as part of the disclosure document, and the other that the franchisee must return to the franchisor. The amended Rule’s general recordkeeping requirements, discussed below, also require franchisors to retain a copy of each signed receipt for at least three years to demonstrate compliance.
Required Preamble
Item 23 requires that all receipts begin with the title, “Receipt,” in boldface type, and continue immediately with the following prescribed preamble language:
This disclosure document summarizes certain provisions of the franchise agreement and other information in plain language. Read this disclosure document and all agreements carefully.If [name of franchisor] offers you a franchise, it must provide this disclosure document to you 14 calendar days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the proposed franchise sale.
If [name of franchisor] does not deliver this disclosure document on time or if it contains a false or misleading statement, or a material omission, a violation of federal law and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C. 20580 and [state agency].
Name of Seller
Item 23 of the amended Rule requires franchisors to name and provide contact information (principal business address and telephone number) for each specific seller offering the franchise. This includes any company salespersons, subfranchisors, or independent franchise brokers who may deal with a prospective franchisee. Because this information may vary with each franchise offered for sale, a franchisor can comply with this provision either by leaving a blank space in the standard disclosure document that can be filled in by the seller or by including the name(s) and contact information in an attachment to Item 22, which is then referenced in the Item 23 receipt.
Issuance Date
The receipt must include the issuance date of the disclosure document. An “issuance” date is very flexible, meaning any date upon which the franchisor finalizes the current version of the disclosure document for use. States that require registration, however, may use the term “effective date,” to mean the date upon which the state formally approves registration of the disclosure document. Where a franchisor seeks registration in one or more registration states, the franchisor may use, in lieu of an issuance date, an “effective” date to comply with state law. Franchisors obtaining an effective date from a registration state may also use the term “effective date” in nonregistration states.
Return of Receipt
The Item 23 receipt requirement is flexible, permitting electronic acknowledgments of receipt. The term “signature” includes not only written signatures, but electronic signatures, passwords, security codes, and other methods that enable a prospective franchisee easily to acknowledge receipt, authenticate his or her identity, and submit the receipt information to the franchisor. Franchisors may include specific instructions on how prospective franchisees should submit the receipt, such as via facsimile or email attachment. Further, the means required for transmitting the receipt need not be the same as the means for transmitting the disclosure document. For example, a franchisor may wish to furnish disclosure documents online, but require a prospective franchisee to print out, sign, and fax back the signed receipt. In short, Item 23 of the amended Rule enables the parties to determine for themselves the most efficient and cost-effective way for the prospective franchisee to transmit the receipt.
This article is part of a series of articles on starting a franchise in Minnesota.
The content of this post has been copied from the Federal Trade Commission’s Franchise Rule 16 C.F.R. Part 436 Compliance Guide
