A Summary of the Revised FTC Franchise Rule
On Tuesday, January 23, the Federal Trade Commission announced approval of a new FTC Franchise Rule. This long-anticipated rule change will involve revisions to nearly every UFOC disclosure item. As an aside, the FTC’s explanation and presentation of the new Rule (including the “Statement of Basis and Purpose”) is over 390 pages long, with extensive footnotes! In general, suggestions from members of the professional franchising community have been widely adopted in the new Rule.
This new Rule is effective as of July 1, 2007, but Franchisors can phase it in the new Rule and use their current UFOC format or the new FTC Rule format for one year from this effective date. As of July 1, 2008, franchises can only be offered using the new FTC Rule format, subject to minor changes to conform with state requirements.
Franchisors with a 12/31/06 fiscal year will generally use the current UFOC for all of 2007, and will begin to work toward converting to the new format in late 2007 to prepare for filings consistent with the New Rule in the Spring of 2008.
In the interim, registration states will most likely mirror the revisions to the FTC Rule in their disclosure requirements and hope that greater disclosure requirement uniformity will be the net result, although that hope has not always been fulfilled in the past!
The changes to the UFOC and related practices are many, for the highlights read: FTC Rule Highlights
There will be significant implications for Franchisors in transitioning to the new format, but ultimately aspects of the new FTC Franchise Rule will be beneficial to both Franchisors and Franchise investors. The IFA will be reviewing the final amendments to the Rule in the next weeks and provide additional guidance, as well as announce dates and locations of regional Legal Roundtable programs that will help clarify the New Rule.
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