What if the information given to a prospective franchisee in the disclosure agreement is misleading or fraudulent or incomplete?
The law prohibits the sale of a franchise by way of any communication that contains an untrue statement of a material fact or fails to state a material fact that should be stated. Generally, a "material fact" is one that a reasonable person would believe to be important in making a decision on whether to buy a franchise or not the transaction. Such a fact might be that X% of the company's franchisees have gone bankrupt, as a reasonable person would find this information important in making a decision to purchase a franchise. If a material fact is omitted by a franchiser, a franchisee may bring legal action to recover damages.
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