Item 14: Patents, Copyrights, and Proprietary Information Like Item 13, Item 14 of the amended Rule follows the UFOC Guidelines in requiring disclosure of information about intellectual property related to the franchise. Franchisors must disclose the types of intellectual property, their ownership rights or licenses in each, details about, and the duration of, their rights,…
Item 13: Trademarks Consistent with the UFOC Guidelines, Item 13 of the amended Rule requires franchisors to disclose whether each of its principal trademarks is registered with the United States Patent and Trademark Office (“PTO”), as well as application, renewal, and other related information. If not, Item 13 mandates the following prescribed statement: We do…
ITEM 9: FRANCHISEE’S OBLIGATIONS This table lists your principal obligations under the franchise and other agreements. It will help you find more detailed information about your obligations in these agreements and in other items of this disclosure document. Obligation Section in agreement Disclosure document item a. Site selection and acquisition/lease Section 2A of franchise agreement…
Franchise Disclosure Document Belmont Mufflers, Inc. A Minnesota Corporation 111 First Street Jackson, Minnesota 55000 (111) 222-3333 franchiseofficer@belmont_mufflers4u.com www.belmont_mufflers4u.com Belmont Mufflers, Inc., repairs and installs motor vehicle exhaust systems. The total investment necessary to begin operation of a Belmont Mufflers franchise is $100,000. This includes $42,000 that must be paid to the franchisor or affiliate….
The “Insiders” Exemption The amended Rule adds a new exemption for franchise sales to the officers, directors, general partners, managers (collectively “officers”), and owners of a franchisor. The prerequisites to qualify for this exemption differ depending upon whether the individual franchise purchaser is an officer, director, general partner, or manager, on the one hand, or…
ITEM 17: THE FRANCHISE RELATIONSHIP This table lists certain important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this disclosure document. Provision Section in franchise or other agreement Summary a. Length of the franchise term Section 1 (also Section 1 of Lease) Term is equal to…
Item 10: Financing Like Item 10 of the UFOC Guidelines, Item 10 of the amended Rule requires franchisors to disclose all material terms and conditions of any financing arrangements. The required disclosures include: The rate of interest, plus finance charges, expressed on an annual basis; The number of payments; Penalties upon default; and Any consideration…
The “Required Payment” Element The last of the three definitional elements of a franchise covered by the amended Rule is that purchasers of the business arrangement must be required to pay to the franchisor (or to an affiliate), as a condition of obtaining a franchise or starting operations, a sum of at least $500 at-5…
Item 7: Estimated Initial Investment Item 7 of the amended Rule requires franchisors to set out in a prescribed tabular format a franchisee’s entire estimated initial investment – i.e., all the expenses required by the franchise agreement and all other costs necessary for a franchisee to commence business. These expenses include items that are often…
Item 12: Territory Item 12 of the amended Rule, like the corresponding item of the UFOC Guidelines, requires detailed disclosures concerning assigned territories and applicable sales restrictions. Two important topics that must be covered in Item 12, among others, are: the conditions, if any, under which a franchisor will approve the relocation of the franchisee’s…
Item 16: Restrictions on What the Franchisee May Sell Like the UFOC Guidelines, the amended Rule’s Item 16 calls for disclosure of any restrictions relating to the goods or services a franchisee sells, including: any restriction allowing only sales of franchisor-approved goods or services; any restriction requiring a franchisee to sell all goods or services…
Large Franchisee Exemption The amended Franchise Rule exempts franchise offers and sales to large entities – such as airports, hospitals, and universities – that have been in business for at least five years and have a net worth of at least $5 million. What Type of Business Experience Is Required? To qualify for the exemption,…
Oral Agreements The amended Rule exempts purely oral relationships that lack any written evidence of a material term of the franchise relationship or agreement, as a matter of policy, to avoid problems of proof in its enforcement. However, the exemption does not apply when there is any writing, even if unsigned, with respect to a…
Isolated Sales and Limited Offerings Sales by a nonissuer of securities to no more than ten purchasers in Minnesota during any period of twelve consecutive months are exempt from registration as are nonissuer transactions by or through a broker dealer where the security has been in the hands of the public for at least 90…
Sample General Media Financial Performance Representation Our Franchisees Earn $50,000 or More Per Year! Now, for a limited time in this area, Belmont Mufflers, Inc., is offering an opportunity for a self-motivated individual to join the ranks of independent entrepreneurs who have earned $50,000 a year.* Small investment needed. Seize the chance! ________________ * W…
Sample Item 15-1: Obligation to Participate in the Actual Operation of the Franchise Business ITEM 15: OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS. If you are an individual, you must directly supervise the franchised business on its premises. If you are a corporation, a person who owns at least a 1/3…
The Table of Contents Each disclosure document must contain a table of contents, following the order and form set forth in the amended Rule. When preparing the table of contents, franchisors must state the page where each disclosure item begins and refer to any exhibits by letter. Note that, on this example of a franchise…
Sample Integration Provision This Agreement and all exhibits to this Agreement constitute the entire agreement between the parties and supersede any and all prior negotiations, understandings, representations, and agreements. Nothing in this or in any related agreement, however, is intended to disclaim the representations we made in the franchise disclosure document that we furnished to…
Sample Item 19-1: Financial Performance Representation (Based on Actual Historical Performance Results) ITEM 19: FINANCIAL PERFORMANCE REPRESENTATION The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in…
A company selling securities to residents of the state of Minnesota must comply with federal and state securities laws. State securities laws are collectively and individually referred to as “Blue Sky Laws.” These Blue Sky Laws vary among the states, sometimes to a significant degree. It is important to note that the Minnesota Legislature recently…
Sample Item 21-1: Financial Statements ITEM 21: FINANCIAL STATEMENTS Attached to this disclosure document as Exhibit J are our audited, fiscal year end financials for 2005, 2006, and 2007. Attached to this disclosure document as Exhibit K are the audited, fiscal year end financials for 2005, 2006, and 2007 of subfranchisor Richard McDonald. Sample Item…
Table of Contents Item Page 1. The Franchisor and any Parents, Predecessors, and Affiliates 1 2. Business Experience 3 3. Litigation 4 4. Bankruptcy 6 5. Initial Fees 7 6. Other Fees 10 7. Estimated Initial Investment 11 8. Restrictions on Sources of Products and Services 12 9. Franchisee’s Obligations 15 10. Financing 17 20….
ITEM 6: OTHER FEES (Column 1) Type of fee (Column 2) Amount (Column 3) Due Date (Column 4) Remarks Advertising (note 1) 2% of total gross sales. Same as royalty fee Cooperative Advertising (note 1) Maximum – 2% of total gross sales Established by franchisees Franchisee may form an advertising cooperative and establish local advertising…
Introduction The Amended Franchise Rule specifies how franchise disclosure documents are to be prepared, what additional information may and may not be included, and what records franchisors must maintain. Disclosure documents must: use “plain English”; be contained within a single document; and address each disclosure item without including additional information. It is recommended that an…
ITEM 18: PUBLIC FIGURES Belmont has paid Ralph Doister $50,000 for the right to use his name in promoting the sale of our franchise. This right expires on December 31, 2008. Belmont has produced newspaper ads, a brochure, and a video which feature Mr. Doister. Mr. Doister does not manage or own an interest in…
Additional Prohibitions In addition to the prohibitions concerning the making of financial performance representations, discussed above, the amended Rule prohibits seven specific acts or practices. Each of the seven is discussed immediately below. Prohibition Against Contradictory Information The amended Rule prohibits a franchise seller from making any statement that contradicts the information disclosed in the…
Reasonableness of a Financial Performance Representation The amended Rule prohibits franchise sellers from making any financial performance representation unless they have a reasonable basis for the representation at the time the representation is made. Written factual information in the seller’s possession must reasonably support the representation, as it is likely to be understood by a…
Financial Performance Representations The amended Rule prohibits financial performance representations that are not true or are not substantiated at the time they are made. It is important to note that these prohibitions cover not only the franchisor, but any “franchise seller.” The amended Rule defines the term “franchise seller” as follows: A person that offers…
Instructions for Updating Disclosures Franchisors must ensure that their disclosure documents are accurate and up to date. To that end, the amended Rule imposes three basic updating requirements: (1) annual updates; (2) quarterly updates; and (3) notification of changes in financial performance information. Annual Updating Requirement After the close of each fiscal year, a franchisor…
Instructions for Updating Disclosures Franchisors must ensure that their disclosure documents are accurate and up to date. To that end, the amended Rule imposes three basic updating requirements: (1) annual updates; (2) quarterly updates; and (3) notification of changes in financial performance information. Annual Updating Requirement After the close of each fiscal year, a franchisor…
