Franchise Legal Considerations and the UFOC
One of the most important events in franchising is the introduction of the Franchise Rule on October 21, 1979 by the Federal Trade Commission (FTC). The FTC Franchise Rule requires all franchisors operating anywhere in the U.S. to make full disclosure of the information that a prospective franchisee needs in order to make a rational decision about whether or not to invest.
In effect, the rule obliges franchisors to meet certain FTC standards, such as ensuring that a reasonable basis for any claims exists, that the disclosure has been prepared in accordance with accepted accounting principles, and that there is evidence to support the financial claims, and that the franchisee, among others, can see this evidence.
This disclosure must occur at the first contact with the franchisor, franchise broker, or anyone who represents the franchise for sale, where the subject of buying a franchise is discussed. The disclosure must be at least ten business days before the signing of any franchise or related contract or payment to the franchisor.
Although the FTC does not require registration from franchisor, several states do have registration rules requiring franchise sellers to register. Most states have adopted the Uniform Franchise Circular Offering (UFOC) guidelines for their disclosure requirements, but as a potential franchisee, do not assume that if a franchise is registered with the state or provides some type of full disclosure document, you are protected from the possibility of a failure or rip-off. You must use common sense and do your research!
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