Correct Franchise Information With UFOC? Yeah. Right.

I read an interesting letter to the FTC.

“There are currently NO standards a franchise company must meet in order to offer franchises", says Mr. Kevin Murphy, a franchise lawyer. That might be somewhat exaggerated because after all franchisors are expected to adhere to certain minimum disclosure standards under the FTC’s franchise rule, which has not essentially changed since Murphy wrote his letter. Should a franchisor NOT give a prospect a UFOC or time to think about buying, then the FTC MIGHT begin looking into the franchisor's disclosure practice.

Still, it is a common mistake for franchise buyers to think franchising disclosure documents have received a stamp of approval from the FTC. Although required to disclose certain information to potential buyers, franchisors do not submit such reports to the FTC, nor are they audited by them. In explaining the difference between a company issueing stock or a company selling a franchise, Murphy continues, “Perhaps someone can explain why a franchise company can require someone to invest ALL of their net worth in a franchise ‘opportunity,’ yet this same company is unable to sell even $1 of its stock to this same individual?”

The moral of the story? Know that the FTC does not check, nor does it necessarily know if the information provided in the UFOC to the potential buyer is correct. And according to Murphy, you can become a franchisor with a dollar in the bank.