Franchisor's Disclosure Statement
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The rather hefty franchise disclosure statement, or circular offering (UFOC), requires data and information from the franchisor 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 (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. Offerings must be updated at least annually, but must be updated quarterly when there is a material change to the information contained in the document.
There are several key items that should be included in your franchise disclosure statement:
- The background information on the franchisor and any predecessors to the franchise;
- The identities and business backgrounds of key personnel affiliated with the franchisor 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 by a franchisee to purchase or lease from designated sources;
- The principal obligations of both the franchisee and franchisor;
- Exclusive area or territory;
- Any patents, copyrights, trademarks, service marks, trade names, logos or commercial symbols;
- Any commitment by 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 reviewing the franchisor's disclosure statement and need clarification, your best first step is to get in touch with a franchise law attorney in your area to assess its contents and the impact on you.