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Explaining the Differences Between the UFOC and the FDD

Written by: Michael Hemenway

Article Overview: The new FTC rules have bought smiles in the face of the franchisors and franchisees alike. It has made giving earning claims easier for the franchisors while the franchisees are duly warned whether they have to compete against the franchisor or another franchisee within its demarcated territory.

Explaining the Differences Between the UFOC and the FDD

If you have not heard the term FDD or the new FTC rule, then you must be new to the franchise world. The new changes have been on the FTC radar for long; it has been fine-tuning everything before implementing the changes. Since last year, the franchisor had an option of either choosing the UFOC format or the new amended guidelines. But after July 1st, only the formats adhering to new FTC rules will be allowed. So, if you are offering franchise business for sale, then make sure that your disclosure document is ready as per the new rules. If you are in the market to buy a franchise, then read about the new rules that can save you from unscrupulous franchisors.

The changes that will affect the franchisors:

• All the names of the people directly involved with the selling and managing of the franchise operation need to be given along with their experience and litigation history.
• If any employee has a stake in any of the approved supplier, then it has to be mentioned.
• Litigation and financial history of the parent company that is obligated in any way to support the franchisor in time of need.
• The litigation cases that the franchisor has brought against its franchisees.
• Earning claim from a particular sub group and the name of the franchisees that have reached the amount claimed from the same area as opposed to all franchisees from the whole chain.
• A table to show the number of company-owned outlets that have been opened or closed. It will also have a list of all the outlets that have been bought from the franchisees or sold to them for the last three years.

The changes that will have an effect on the franchisees:

• Franchisees making an investment of above $1 million in addition to the franchise fee and other fees are exempted from getting the franchise disclosure document before signing any franchise agreement.
• There is no need of meeting the franchisor face to face before getting the FDD.
• It can be sent electronically and the receipt for it can be given same way.
• The minimum day of getting the FDD and signing any agreement is 14 calendar days.
• No list of brokers employed by the franchisor.
• Warning, if the company doesn’t provide exclusive territory.
• Explanation of the term renewal.
• If any outlet has seen “churning activity” i.e. if it has been sold and resold many times, then a supplementary document listing each transaction and the cause of it has to be given.

Related Articles
  Franchise information that is pertinent to your investigation is disclosed in the Uniform Franchise Offering Circular (UFOC).
  Explaining the UFOC
  Franchise Financial Information
  Big Changes Coming in Franchise UFOC Meet the FDD
  What is the Franchise Ufocs Role

Article Tags: business for sale, disclosure document, fdd, financial history, franchise agreement, franchise business, franchise disclosure, franchise fee, franchise operation, franchise world, franchisees, franchisor, franchisors, ftc rule, ftc rules, litigation cases, litigation history, parent company, stake, time of need



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UFOC Clearly States - Every UFOC clearly states that no government agency has checked the information in the UFOC. It is up to you to check it. You cannot simply rely upon what is in the UFOC without checking it out. (One might think that this is a make work program for franchisee lawyers and consultants, except that few franchisees every check out the UFOC.) There are a lot of ways to check the information out. For example, Netfran Development's UFOC has no earnings claim in item 19. But since the UFOC also discloses that NetFran is a public company, and so it is useful to review the company's 10k's - a public document- to see what is says about its franchisees. Remember that it is up to you to check out the UFOC and report any inadequacies to the relevant state/fed authorities.
Internet consulting franchise - Do you think if you sent in an application to Netspace or to whatever franchise concepts you have an interest in developing and you possess the requisite net worth and cash to qualify that that might be a good way to get the UFOCs from these companies? The UFOC is the fountainhead for your due diligence otherwise asking inane questions on this forum or any other one is a waste of time. Now you could alternatively purchase the UFOC from a third party. If you have a UFOC then you have a list of current and former franchisees and I must point out that they likely have more useful information than the anonymous posters and those posters who just have an opinion.
Franchise Territories - [quote="franchisebrief.com":1dfdbmhp]This information will be included in the UFOC. If the UFOC states that there is no protected territory, then I would be suspicious. If UFOC states that each franchisee will have its own territory, then there should not be any problem.[/quote:1dfdbmhp] Any franchises that I'm familiar with have a territory or distance provision that prevents franchisees from overlapping their territories. This is only a problem when you have an underproducing franchisee - but they should also have a provision to give a franchisee a set amount of time to make a go of the location and territrory. Shri
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