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2. Legal Documents Required of Franchisors
There are two official documents that a franchisor may use to comply with the FTC Rule-- the FTC Disclosure Document (FTC Document) and the Uniform Franchise Offering Circular (UFOC). The FTC document does not meet the requirements of most state disclosure laws, whereas the UFOC is accepted (with minor differences) in all states with franchise disclosure laws. The two documents possess similarities, but the franchisor must pick one or the other. Most franchisors opt for the UFOC, because of its wider acceptance. This is the document we will focus on.
What is the UFOC?
The UFOC is a document that contains information franchisors must provide to you by law, designed to assist you in analyzing the merits of your potential franchisor. In fact, a franchisor must provide a prospective franchisee with a UFOC at their first face-to-face meeting or at least ten business days prior to the signing of the franchise agreement, whichever is earlier.
Keep in mind that neither the FTC nor any of the states has reviewed the offering circular to determine whether the information submitted is accurate or not. They merely require that the franchisor make representations based upon a prescribed format. If the information provided is false, franchisors are subject to civil penalties. However, it is far less costly to avoid making a mistake in the first place with solid research of your own.
How can I get hold of a UFOC?
Most franchisors request the following information from you before sending a copy of their UFOC:
- Assets
- Liabilities
- Net Worth
- Sources of Income
- Educational History
- Previous Employment
- Credit References
- Personal References
- Motivation for Buying a Franchise
Try to obtain a UFOC before franchisor approval so that you can avoid submitting personal information to a franchise that you may not decide to pursue. Please refer to our Resource Center for information on how you can obtain a franchisor’s UFOC for viewing.
So what does a UFOC contain?
A UFOC contains the following required information:
- The Franchisor and Any Predecessors
- Identity and Business Experience of Persons Affiliated with Franchisor
- Litigation
- Bankruptcy
- Franchisee’s Initial Fee/Other Initial Payments
- Other Fees
- Franchisee’s Initial Investment
- Obligations of Franchisee to Purchase or Lease from Designated Sources
- Obligations of Franchisee to Purchase or Lease in Accordance with Specifications or from Approved Suppliers
- Financing Arrangements
- Obligations of the Franchisor, Other Supervision, Assistance or Services
- Exclusive Area of Territory
- Trademarks, Service Marks, Trade Names, Lototypes and Commercial Symbols
- Patents and Copyrights
- Obligations of the Franchisee to Participate in the Actual Operation of the Franchise Business
- Restrictions on Goods and Services Offered by Franchisee
- Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
- Arrangements with Public Figures
- Actual, Average, Projected or Forecasted Franchise Sales, Profits or Earnings
- Information Regarding Franchises of the Franchisor
- Financial Statements
- Contracts
- Acknowledgment of Receipt by Respective Franchisee
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