postheadericon How to Create Disclosure Statements for a Franchise

The sales offer of a franchise requires that a regulatory document called a Uniform Franchise Offering Circular (UFOC) or Franchise Disclosure Document (FDD) be provided to the potential franchisee. This document includes agreements and statements as well as the disclosure of 23 items of information designed to give the franchisee the necessary information to make an informed decision on the purchase of the franchise. Some of the items covered include the obligations of the parties, the litigation and financial history of the franchise, fees, and a description of the franchise. The disclosure is required to be submitted to the franchisee at least 14 days prior to the signing of the agreement. Franchisors who fail to fully and honestly disclose all of the required information, or practice unfair or deceptive acts can face federal penalties.

How to Create Disclosure Statements for a Franchise

1 Know whether your business transaction requires the disclosures covered by the Franchise Rule. The Rule defines franchises as continuing commercial relationships that fall under 1 of 2 categories. The relationship is a franchise, requiring disclosure where the franchisee sells goods and services under the franchisor’s trade mark or quality standard, where the franchisors has significant control or exercises significant assistance in the method of operation, and a fee of $500 paid to the franchisor anytime within 6 months after the startup of the business. The relationship is also a franchise, requiring disclosure, where the franchisor supplies the goods and services, assists the franchisee by securing accounts or locations, and requires the $500 payment within 6 months of the startup of the business.

How to Create Disclosure Statements for a Franchise

2 Satisfy the disclosure obligations by following several basic rules. Deliver to the franchisee an accurate, current and complete disclosure document. Limit franchise offers to states where such activity is lawful. Make no financial claims regarding earnings other then where required on the disclosure document. Make sure that all material facts are disclosed.

How to Create Disclosure Statements for a Franchise

3 Deliver the disclosure on time. The Franchise Rule permits electronic disclosure of the required documents.

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