Franchise Rule Changes
Franchise Rule Changes
Here are some highlights of what you need to know:
• UFOC is now the FDD - Uniform Franchise Offering Circular has become the Franchise Disclosure Document
• Disclosure Delivery Rule – rather than the prospect receiving the disclosure document at the first personal meeting, it can now be delivered anytime as long as there are 14 calendar days before the franchisee signs any agreement or pays any consideration. E-Disclosure is now permitted as long as potential franchisees are advised of the different formats available and the franchisee must be able to store and print the version made available by the franchisor.
• Final Agreement Delivery Rules – the old “5 business day” rule has been eliminated. Now the form of agreement attached to the disclosure document serves as the final agreement for purposes of delivery. However, if the franchisor makes unilateral changes to the agreement, it must deliver the new version at least seven days before signing.
• The most significant change to the disclosure requirements is a completely revamped Item 20 (which shows changes in the number of system outlets over a three-year period). The new disclosure document mandates a fully reconciled tabular summary of the inflow and outflow of franchised and company-owned outlets over the course of each year. It also establishes a separate table for transfers, which ultimately do not affect the total number of operating outlets.The Rule also contains definitions of specific events and creates rules to avoid double-counting of those events. For example, if the franchisor terminates a franchise but then repurchases the outlet, those rules would focus on the “last-in-time” event, and, thus, it would be characterized as a repurchase.
• Earnings Claims are now called: Financial Performance Representations. The FTC has confirmed that it will not mandate the use of such representations in the disclosure document. However, the FTC has added specific preambles to Item 19, indicating that franchisors are allowed to provide financial performance representations and that prospects should not rely on unauthorized representations.
• No Protected Territory: If the franchisor does not provide any protected territory, the disclosure document must contain a warning legend about the franchisee’s lack of exclusivity and the possibility of competition from other channels of distribution.
So, what do all these changes mean to you if you are currently exploring franchise opportunities?
Possibly a more informative and streamlined process when you find a particular franchise that offers some serious probability for you. In addition to all these changes, depending on where you live, your state may have laws and regulations that franchisors must follow in your state. These laws may be in addition to the FTC rules.
There are currently 15 states that have imposed certain regulations for franchisors to operate in that state. They are: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.
Certain other states require only a one-time or annual registration by the franchisor before they can bring franchisees on board who live in those states.
This article was written particularly for those who are currently exploring franchise opportunities or intend to do so in the near future. It behooves us all to stay current on laws and changes that may affect our future.
Franchise Rule Changes - To learn more about this author, visit Anne Barr's Website.
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Several years ago, the Federal Trade Commission announced that it intended to overhaul its Franchise Rule. It has now finalized those changes and they must be complied with by all franchisors no later than July, 2008.
Here are some highlights of what you need to know:
• UFOC is now the FDD - Uniform Franchise Offering Circular has become the Franchise Disclosure Document
• Disclosure Delivery Rule – rather than the prospect receiving the disclosure document at the first personal meeting, it can now be delivered anytime as long as there are 14 calendar days before the franchisee signs any agreement or pays any consideration. E-Disclosure is now permitted as long as potential franchisees are advised of the different formats available and the franchisee must be able to store and print the version made available by the franchisor.
• Final Agreement Delivery Rules – the old “5 business day” rule has been eliminated. Now the form of agreement attached to the disclosure document serves as the final agreement for purposes of delivery. However, if the franchisor makes unilateral changes to the agreement, it must deliver the new version at least seven days before signing.
• The most significant change to the disclosure requirements is a completely revamped Item 20 (which shows changes in the number of system outlets over a three-year period). The new disclosure document mandates a fully reconciled tabular summary of the inflow and outflow of franchised and company-owned outlets over the course of each year. It also establishes a separate table for transfers, which ultimately do not affect the total number of operating outlets.The Rule also contains definitions of specific events and creates rules to avoid double-counting of those events. For example, if the franchisor terminates a franchise but then repurchases the outlet, those rules would focus on the “last-in-time” event, and, thus, it would be characterized as a repurchase.
• Earnings Claims are now called: Financial Performance Representations. The FTC has confirmed that it will not mandate the use of such representations in the disclosure document. However, the FTC has added specific preambles to Item 19, indicating that franchisors are allowed to provide financial performance representations and that prospects should not rely on unauthorized representations.
• No Protected Territory: If the franchisor does not provide any protected territory, the disclosure document must contain a warning legend about the franchisee’s lack of exclusivity and the possibility of competition from other channels of distribution.
So, what do all these changes mean to you if you are currently exploring franchise opportunities?
Possibly a more informative and streamlined process when you find a particular franchise that offers some serious probability for you. In addition to all these changes, depending on where you live, your state may have laws and regulations that franchisors must follow in your state. These laws may be in addition to the FTC rules.
There are currently 15 states that have imposed certain regulations for franchisors to operate in that state. They are: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.
Certain other states require only a one-time or annual registration by the franchisor before they can bring franchisees on board who live in those states.
This article was written particularly for those who are currently exploring franchise opportunities or intend to do so in the near future. It behooves us all to stay current on laws and changes that may affect our future.
Franchise Rule Changes - To learn more about this author, visit Anne Barr's Website.
Like this article? Share it with your friends
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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