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Franchise Disclosure Document

The Franchise Disclosure Document is a specific format of disclosure document required of franchisors (the franchise seller) to franchise buyers by certain states. It is designed to provide some degree of protection to the public by providing information about the franchising company before a franchise purchase is realized.There is no federal government agency that will receive the filing of a franchisor’s UFOC.

 The Uniform Franchise Offering Circular (UFOC) format, now called the Franchise Disclosure Document as of July 1, 2008, was adopted in 1993 by the North American Securities Administrators Association (NASAA), which was later approved by the FTC.

Many states have implemented their own individual franchise rules and disclosure requirements. A minority of states, 13, has franchise filing requirements. 15 states have led franchising regulation by adopting more stringent standards of the UFOC format rather than the federal Franchise Rule.

If a franchisor is authorized to sell in the states below, the company must be registered with the following offices there.

  1. CA: Department of Corporations  (213) 576-7500
  2. HI: Consumer Affairs, Securities Compliance  (808) 586-2722
  3. IL: Attorney General's Office, Franchise Division  (217) 782-1090
  4. IN: Securities Commissioner, Securities Division  (317) 232-6681
  5. MD: Maryland Attorney General’s Office, Securities Division (410) 576-6360
  6. MN: Minnesota Dept of Commerce  (612) 296-4026
  7. NY: Attorney General’s Office (212) 416-8200
  8. ND: Office of the Securities Commissioner (701) 328-2910
  9. RI: Division of Securities (401) 222-3048
  10. SD: Division of Securities (605) 773-4823
  11. VA: Division of Securities & Retail Franchising (804) 371-9051
  12. WA: Dept of Financial Institutions, Securities Division (360) 902-8760
  13. WI: Wisconsin Securities Commission (608) 261-9555

Since franchisors who want to sell in these 14 states must use the tougher UFOC, franchisors want to minimize their disclosure efforts by issuing their prepared UFOC in 35 states.  However, a franchisor in these states is only required to provide a disclosure document compliant with the federal Franchise Rule. No record of these documents need be registered with the State.

The circular has 23 categories (*.doc) of information that needs to be provided to the franchise buyer.

  1. Description of franchisor, predecessor company and affiliates
  2. Business Experience
  3. Litigation
  4. Bankruptcy
  5. Initial Franchise Fee
  6. Other Fees
  7. Initial Investment
  8. Restrictions on Sources of Products
  9. Franchisee's Obligations
  10.  Financing
  11.  Franchisor's Obligations
  12.  Territory
  13.  Trademarks
  14.  Patents, Copyrights, and Proprietary Information
  15.  Obligation to Participate in the Actual Operation of the Franchised Business
  16.  Restrictions on What the Franchisee May Sell
  17.  Renewal, Termination, Transfer, and Dispute Resolution
  18.  Public Figures
  19.  Earnings Claims
  20.  List of Franchise Outlets
  21.  Financial Statements
  22.  Contracts
  23.  Receipt

It is important that the franchise buyer thoroughly investigate the potential opportunity. One of the first steps is understanding what is in the UFOC, its reliability and what is not there. Franchise411 has organized an instructional guide, Franchising, Introduction to the Uniform Franchise Offering Circular and the Franchise Agreement that is worth a read.

Other readings:

 

NASAA's list of states with franchise regulation

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