Instructions for Preparing Disclosure Documents The Rule specifies how the disclosures are to be prepared, what additional information may and may not be included, and what records franchisors must maintain. Use of “Plain English” The amended Rule requires franchisors to disclose all specified, material information clearly, legibly, and concisely in a single document using plain…
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…
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…
Item 22: Contracts Item 22 of the amended Rule requires franchisors to attach a copy of all proposed agreements relating to the franchise offering that the franchisor provides or for which the franchisor makes arrangements. These include not only the franchise agreement, but leases, options, financing agreements, and purchase agreements. These attachments are part of…
Item 21: Financial Statements Consistent with the UFOC Guidelines, the amended Rule requires franchisors to include in Item 21 copies of their financial statements audited in accordance with generally accepted accounting principals (“GAAP”) for the most recent three fiscal years to show the financial condition of the franchisor. The financial statements of franchisors that own…
Item 21: Financial Statements Consistent with the UFOC Guidelines, the amended Rule requires franchisors to include in Item 21 copies of their financial statements audited in accordance with generally accepted accounting principals (“GAAP”) for the most recent three fiscal years to show the financial condition of the franchisor. The financial statements of franchisors that own…
Item 20: Outlets and Franchisee Information Like the UFOC Guidelines, Item 20 of the amended Rule requires the disclosure of statistical information on the number of franchised outlets and company-owned outlets for the preceding three-year period. Note, however, that the tables in the amended Rule differ substantially from the version of these tables that may…
Item 20: Outlets and Franchisee Information Like the UFOC Guidelines, Item 20 of the amended Rule requires the disclosure of statistical information on the number of franchised outlets and company-owned outlets for the preceding three-year period. Note, however, that the tables in the amended Rule differ substantially from the version of these tables that may…
Item 19: Financial Performance Representations Like the original Rule and the UFOC Guidelines, the amended Rule permits, but does not require, franchisors to include representations about financial performance in their disclosure documents.16 Unlike the original Rule, a franchisor that decides to make such representations must include them in Item 19, not in a separate document….
Item 19: Financial Performance Representations Like the original Rule and the UFOC Guidelines, the amended Rule permits, but does not require, franchisors to include representations about financial performance in their disclosure documents.16 Unlike the original Rule, a franchisor that decides to make such representations must include them in Item 19, not in a separate document….
Item 18: Public Figures Item 18 of the amended Rule requires the disclosure of certain information about a public figure’s involvement in the franchise system. This covers public figures who lend their name or image to the franchise, control or manage the franchisor, or invest in the franchisor. Who Qualifies as a “Public Figure”? A…
Item 17: Renewal, Termination, Transfer, and Dispute Resolution Item 17 of the amended Rule is substantively similar to Item 17 of the UFOC Guidelines. It requires franchisors to summarize, in the specified tabular format, common provisions of franchisee agreements, including those provisions dealing with termination, renewal, and dispute resolution. The Item 17 table must begin…
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…
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business Item 15 of the amended Rule requires franchisors to disclose whether franchisees are required to participate personally in the direct operation of the franchise. Among other things, the amended Rule’s Item 15 calls for disclosures stating: any obligation for the franchisee to…
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 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 11: Franchisor’s Assistance, Advertising, Computer Systems, and Training Consistent with the UFOC Guidelines, Item 11 of the amended Rule requires the disclosure of the franchisor’s obligations under the franchise agreement to furnish assistance to franchisees. The disclosure requirements encompass pre-opening assistance (e.g., site selection), as well as any ongoing assistance, such as advertising and…
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…
Item 9: Franchisee’s Obligations Item 9 of the amended Rule requires the disclosure of a franchisee’s principal obligations in the prescribed tabular format that references the franchise agreement or other relevant contracts, and the disclosure document sections where more information about the particular obligation can be found. If a particular obligation is not applicable, franchisors…
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 6: Other Fees Like the UFOC Guidelines, Item 6 of the amended Rule requires the disclosure, in a prescribed tabular format, of recurring or occasional fees associated with operating a franchised outlet. These recurring or occasional fees include such charges as royalties, advertising fees, and transfer fees. Item 6 covers payments made directly to…
Item 6: Other Fees Like the UFOC Guidelines, Item 6 of the amended Rule requires the disclosure, in a prescribed tabular format, of recurring or occasional fees associated with operating a franchised outlet. These recurring or occasional fees include such charges as royalties, advertising fees, and transfer fees. Item 6 covers payments made directly to…
Item 5: Initial Fees Consistent with the UFOC Guidelines, Item 5 of the amended Rule requires the disclosure of any initial fees and any conditions on their refundability. “Initial fees” means “all fees and payments, or commitments to pay, for services or goods received from the franchisor or any affiliate before the franchisee’s business opens,…
Item 5: Initial Fees Consistent with the UFOC Guidelines, Item 5 of the amended Rule requires the disclosure of any initial fees and any conditions on their refundability. “Initial fees” means “all fees and payments, or commitments to pay, for services or goods received from the franchisor or any affiliate before the franchisee’s business opens,…
Item 4: Bankruptcy The bankruptcy disclosures of the amended Rule are substantively similar to those of the UFOC Guidelines. One difference, however, is the list of persons about whom bankruptcy information must be disclosed. Franchisors must disclose not only the bankruptcy history of the franchisor itself, its affiliates, and predecessors, but also of any of…
Item 3: Litigation Item 3 calls for the disclosure of certain lawsuits involving the franchisor and other entities associated with the franchisor – i.e., predecessors, parents, and affiliates – in addition to certain lawsuits involving any person identified in Item 2. These are substantially similar to the disclosure requirements of the original Rule and the…
Item 3: Litigation Item 3 calls for the disclosure of certain lawsuits involving the franchisor and other entities associated with the franchisor – i.e., predecessors, parents, and affiliates – in addition to certain lawsuits involving any person identified in Item 2. These are substantially similar to the disclosure requirements of the original Rule and the…
Item 2: Business Experience Item 2 of the amended Franchise Rule is substantially similar to Item 2 of the UFOC Guidelines. It requires disclosure of the business experience of certain individuals – including directors and principal officers, among others – for the last five years. A longer period is acceptable if the prior experience is…
Item 2: Business Experience Item 2 of the amended Franchise Rule is substantially similar to Item 2 of the UFOC Guidelines. It requires disclosure of the business experience of certain individuals – including directors and principal officers, among others – for the last five years. A longer period is acceptable if the prior experience is…
Item 1: The Franchisor And Any Parents, Predecessors, And Affiliates Item 1 of the amended Rule requires franchisors to disclose background information on the franchisor and any parents, predecessors, and affiliates. Unlike the UFOC Guidelines instructions for Item 1, the amended Rule does not expressly require a franchisor to refer to itself as “we,” or…
