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ST. PAUL, Minn. — Franchise disclosure documents can now be reviewed online for the state of Minnesota. Minnesota's Department of Commerce quietly built a database in May of this year that provides public access to franchise disclosure documents that have been submitted by franchisors as well as to enforcement actions taken by the Department. The "land of 10,000 lakes" now joins only one other state in providing franchise regulatory documents online—California. The information can be found at the California Electronic Access to Securities Information and Franchise Information website, also known as Cal-EASI.
Minnesota's new online database is called Commerce Actions and Regulatory Documents Search, or CARDS for short. Any member of the public with an Internet access can search documents registered with the department.
Would-be owners of franchised business units often peruse a franchise disclosure document (FDD) to understand the viability of a franchise system. The document includes average earnings of franchised units, litigation by franchise owners, whether trademarks are registered, and more. These documents are not monitored by any government agency for accuracy. Critics of FDDs, which are provided by franchisors, say that they are simply marketing brochures wrapped in a veneer of authority and credibility. Nonetheless franchisors cannot sell franchise units unless franchise owners verify in writing that they have received and reviewed these disclosure documents.
"A lot of investors don't look at the FDD because they go into a franchisor's sales seminar and are handed franchise disclosure documents," says New York attorney Paul Steinberg. "They are given a sales pitch and think they know the franchise system and that the FDD is simply legalese. They already are sold on the sizzle. If you shop for a franchise with a minimum level like you shop for a car, you at least want to skim through the disclosure documents and owner comments on blogs to avoid the sales hype and pressure."
These disclosure documents can now be viewed online by the public for franchise brands that have been registered in California or Minnesota.
"The Minnesota Department of Commerce launched a brand new website last month focused on providing easier access to information and delivering a better service to Minnesota consumers and businesses," declared Mike Rothman, Commissioner of Minnesota's Department of Commerce, to Blue MauMau. "The CARDS feature of our website is designed specifically to provide consumers, industries, and entrepreneurs a one-stop shop for information about enforcement actions, franchise registrations, financial statements, and more. This convenient, user-friendly tool is an important resource for those considering starting a franchise, and those who have questions about existing franchises."
"The idea of CARDS originated because our website navigation to find enforcement actions was not very user friendly," says Matt Swenson, Communication Director for Minnesota's Department of Commerce. "Our hope is that our customers find CARDS a one spot stop to easily find documents on various topics. Anyone who is interested in the franchise documents can easily find them." Swenson adds that the public can use CARDS to check if a company has any enforcement actions against it.
Minnesota used its existing server to create the online database, so there was minimal cost to taxpayers during tough economic times and state budget cuts. "There was no additional cost to the Department," says Swenson, explaining that department staffers designed the CARDS service in-house when they could find time. "Our staff decided to design the application in such a way that it could be used for many different document types. We can easily add a new document type without having to write one line of code. It is totally database driven."
A leading franchisee attorney, Minneapolis-based law firm Dady & Gardner's Michael Dady, says that he and his colleagues have already been using the CARDS online system. "We think it is a terrific initiative, one that makes it easier for prospective franchisees and their attorneys to have ready access to material facts needed to make informed 'go' or 'no go' decisions. It provides us with key information quickly to more effectively and more efficiently evaluate potential claims for existing franchisees."
Documents are individually added by staff using software. Some disclosure documents and enforcement actions can be tracked back to 2010. The department hopes to automate the process by having the registering companies upload the document for public scrutiny themselves. "We hope in the future to create an e-filing site for these documents," says Swenson.