The Franchise King®

Franchise Legal Magic. The UFOC Disappears!

The month of July marked the end of the infamous Uniform Franchise Offering Circular.
{UFOC}

(This post may contain affiliate links. Please read my disclosure policy).

POOF!

Rest In Peace…….

The Uniform Franchise Offering Circular has been slammed by industry and non industry types for years.This required reading document for prospective franchisees although pretty darn boring, is really important. It was just revamped, and renamed. The FDD, or Franchise Disclosure Document. It has some changes, which are pretty positive for the consumer. I discussed the “boring” factor a bit on the MSNBC Business Blog, recently.

When the Federal Trade Commission overhauled its “Franchise Rule” last year, it came up with this new disclosure format. It was one which adopted the UFOC disclosure requirements, but added to them as well.

These are the items that are to be included in every FDD:

1. The Franchisor, its Predecessors 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 And Services

9. Franchisee’s Obligations

10. Financing



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11. Franchisor’s Obligations

12. Territory

13. Trademarks

14. Patents, Copyrights and Proprietary Information

15. Obligation To Participate In The Actual Operation Of The Franchise 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 Outlets

21. Financial Statements

22. Contracts

23. Receipt

The major differences between the now old UFOC, and the new FDD are:

1. The new law encourages more disclosure about earnings. Information about business costs can be freely disclosed, and financial results can be given in the FDD for a subset of franchisees without having to compare them to the entire chain.
2. The FDD and other informational documents may be sent electronically–a change that will really save franchisors money and maybe even encourage them to send information to prospects sooner.{It is also pretty darn Green!}
3. Franchisors must disclose contact information for all of the franchisee associations in their system, including ones approved by the franchisor as well as independent associations. Before, prospects had to find independent associations on their own.
4. If a franchisor’s corporate parent guarantees the business or provides supplies to franchisees, its contact and financial information has to be disclosed. Previously, corporate parents did not have to be disclosed, at all.
5. More litigation disclosure is now required. Franchisors must list suits they’ve filed against franchisees over the previous year.

The FDD is a welcome change to the UFOC, which has been around for many years, and should provide a little more transparency for potential franchise buyers.

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franchise article written by joel libava
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joel libava

I'm The Franchise King®, Joel Libava. I help prospective franchise owners avoid bank account emptying mistakes.
For 23 years, I’ve been showing people how to make smart, informed decisions on franchises to buy, and I can help you, too!
P.S. I'm not a franchise consultant/broker.

Joel is Highly Principled
There are many people in the franchise business who claim to to be experts in the field. Unfortunately many of them lack both knowledge and integrity. Joel, however, is without question one of the most qualified and principled people I know, in or out of his industry."
- Greg Reynolds, Retired Outplacement Counselor
"Many receive advice, only the wise profit from it."
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