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.
Explaining the Differences Between the UFOC and the FDD - To learn more about this author, visit Ray Flores's Website.
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Ray Flores
(Visit Ray's Website)
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