1 The Franchisor, It's Predecessors And Affiliates
2 Business Experience
5 Initial Franchise Fee
6 Other Fees
7 Initial Investment
8 Restrictions On Sources Of Products And Services
9 Franchisee's Obligations
11 Franchisor's Obligations
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
The UFOC is NOT filed or required to be "on file" with ANY Federal government agency! In 35 states, a franchisor can "sell" immediately in those states as so long as the prospective franchisee is provided a current UFOC by the franchisor at least 10 business days befor ANY contracts are signed or ANY money is paid. In these states, a franchisor is NOT required to "file" or provide a copy of the UFOC to anyone except the potential buyer.
Franchisors who have a properly prepared UFOC can sell franchises in those 35 states immediately. No further burden of compliance is placed on the franchisors or franchisees in those states except in cases of certain industry regulations (i.e. real estate laws, EPA laws, employment laws, etc.) and the various state laws governing the same regulations as well as sales tax regulations.
The other 15 states have additional "franchise sales" requirements. These 15 states have franchise investment laws that require franchisors to provide pre-sale disclosures, to potential purchasers. In these states a franchisor must "register" with that state by filing the current UFOC and meeting additional disclosure requirements. 13 of these state laws treat the sale of a franchise like the sale of a security. They typically prohibit the offer or sale of a franchise within their state until a franchise offering circular has been filed on the public record with, and registered by, a designated state agency. Only 2 of the 15 states do not require a filing in their state offices of offering circulars.
Most of these states however have certain registration law exemptions that allow a "wealthy" or "sophisticated" franchisor OR franchisee to transact a franchise "sale" if the exemption requirements are met. Generally, a franchisor with a net worth of $5 million or a franchisee with a net worth of at least $1 million can be "exempted" from that states standard registration requirements. Also, if the franchise revenue represents less than 20% of the franchisee's total business revenue, an exemption may be given to the franchisor. This is also sometimes referred to as "fractional franchising".
Some states, in an effort to encourage commerce in their states, will allow the sale of 1 to 3 franchises under the exemption status. Their are various other "exemptions" that are offered by the 15 states that are worth investigating for both franchisors and franchisees.
These 15 states are often referred to as "registration states" or "filing states". While these state laws may vary, the state's primary objective is to protect its citizens from investment scams and to have recouse if a franchisor violates its state laws. The primary objective is to make sure that the franchisor is disclosing all important data BEFORE the sale of the franchise so that the potential buyer can make an informed decision.
Just as the franchisor should and usually does investigate the potential franchisee for suitability, the franchisee must investigate the potential opportunity. First, a potential franchisee must understand what theUFOC is and is not. Since the advent of the UFOC "plain English" rule, it is far easier for the potential franchisee to better understand what is being sold and what is being bought.
We have compiled a comprehensive instructional guide for potential franchisees, that goes beyond traditional franchise investigation. As well, it serves to encourage franchisors to provide a more comprehensive and user friendly format when developing the UFOC. This guide can be found at: Franchising: Introduction to the Uniform Franchise Offering Circular and the Franchise Agreement
These state laws give franchise purchasers specific legal rights, including the right to bring private lawsuits if the franchisor omits or violates any of the corresponding state disclosure requirements. Potential franchise purchasers who reside in these states should contact their state franchise law administrators for additional information about the protection these laws provide. The 15 states are:
Caution: Many companies are "franchise pretenders" and attempt to avoid the proper legal forum by claiming "to be or not to be" a franchise opportunity depending on their true legal status and their easiest "sales pitch". Virtually ALL states have "business opportunity" laws. Federally, the FTC has specific laws that govern the sales of business opportunities nationwide. If you would like to understand the difference, please read "Defining A Franchise: The Duck Story".
We invite you to contact us for any advice or recommended resources at our offices via email at:
You may call us at (904) 997-9533.
Or you may write to us at:
Franchise Profiles International
9733 Elaine Road
Jacksonville, FL 32246 USA
Please include your name (address & phone number too- if you want specific info!).
If you want a copy of a specific document such as a UFOC for a particular franchise, you must complete a questionnaire and be approved by the respective franchise company to be able to receive the document. We will help you to get that approval at no cost, but there is a fee for the document, shipping and handling.
FTC: Franchise & Business Opportunity Information
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