What's in the franchise disclosure statement (or circular offering)?

The franchise disclosure statement or circular offering (UFOC) requires data and information from the franchiser in over 20 categories. Cover pages of the offering circular must spell out any risk factors in bold type, such as what happens in the event of disputes including lawsuits or arbitration, and where the dispute may be resolved; the costs involved; the effective date of the offering; and the state law controlling the franchise agreement. They must be updated at least annually, or when there is a material change to the information contained in the document, quarterly.

There are several key items that should be included in your franchise disclosure statement:  

• The background information on the franchiser and any predecessors to the franchise; 
• The identities and business backgrounds of key personnel affiliated with the franchiser or franchise brokers;
• Any prior litigation or bankruptcy history;
• The franchisee's initial franchise fee or payment to begin the operation, other fees, such as service fees, training fees, advertising fees, and royalties;
• Documentation of commitment of a franchisee to purchase or lease from designated sources;
• The principal obligations of both the franchisee and franchiser;
• Exclusive area or territory; 
• Any patents, copyrights, trademarks, service marks, trade names, logos or commercial symbols;
• Any commitment of the franchisee to personally participate in the actual operation of the franchise business;
• Renewal, termination, transfer and dispute resolution;
• Statistical information and listing of other existing franchisees; and,
• Audited financial statements.

If you are drafting a franchise disclosure statement or need clarification about one that was drafted during the process of buying into a franchise company, it is in your best interest to consult with a franchise law attorney in your area.