Articles
Selling Franchises Simplified
by Suzanne C. Cummings
In January 2007, the FTC approved the first revision to the franchise disclosure rule since it was originated in 1978. Franchisors will find many of the changes to their liking, as the FTC amended the rule to respond to changes in market conditions and technologies, minimize the cost of compliance, streamline the disclosure requirements and attempt to harmonize the federal requirements with many state franchise disclosure laws.
A welcome change that will affect how franchisors market their franchise is that the disclosure process to prospective franchisees has been simplified. The obligation to provide a prospective franchisee with a disclosure at the “first personal meeting” has been eliminated. In addition the 10/5 business day “cooling off” period has been changed. The 10 business day rule has been replaced with a 14 calendar day wait period before money may be received from the prospective franchisee or sign any franchise related agreements. However, if a prospect reasonably requests the disclosure document earlier than 14 days before signing the agreement or paying a fee, they are entitled to receive it earlier. The 5 business day rule to provide a prospect with a franchise agreement complete with all material terms has been replaced with 7 days before signing and only if the franchisor has made unilateral changes to the standard agreement, otherwise the time period is included with the prior 14 days. Another benefit of the revised guidelines, pre-sale disclosure compliance may be satisfied by providing a prospect with the disclosure document electronically.
Franchisors may convert current franchise disclosure document to follow the amended rule as soon as July 1, 2007, during a phase-in period; however on July 1, 2008, all must follow the amended rule only. A word of caution, during the phase-in period a franchisor may not “cherry pick” certain provisions of the amended rule and add them to their current format. The amended rule must be used in its entirety or continue to use the current format until next year. No “mix and matching” will be permitted.
The amended rule, part of an almost 400 page document, will require a franchisor comprehend many additions, deletions and changes to the disclosure document and franchise process so as to prepare for a seamless transition well in advance of implementation.
As our firm’s focus is on franchising and related business issues, I invite you to contact us if we may be of service to you as you plan for this sweeping change.
