08 Sep, 2017

Franchise Disclosure Document

The franchise disclosure document is an official document that discloses franchise information to potential franchisees. It should be presented to prospective franchisees at least 10 days before the franchisor and the franchises sign the franchise agreement. The franchise disclosure document contains important franchisor details and is meant to help prospective franchisees to evaluate the pros and cons of buying that particular franchise. It aims at protecting the franchise from misconceptions due to falsehoods that may be spread by the public about a particular franchisor. The format of this document was created by North American Securities Administrators Association (NASAA) in the year 1993. It was later approved for used in 1995 by the Federal Trade Commission. Some of the states that require the franchising companies to employ this format include Washington, Virginia, South Dakota, Rhode Island, North Dakota, New Yolk, Minnesota, Maryland, Indiana, Illinois, and California. These states do not allow the use of the FTC format. This makes the application of the franchise disclosure document the most popular format. Not considering your industry, the format of this document is the same. It should contain a number of aspects including the franchisor. The franchise history, responsibilities of the franchisor and the franchisor. The financial agreements, all the support and training that the franchise is supposed to offer to the prospective franchisee. Other important aspects include the mean estimates for sales and returns, financial statements, franchising contracts, and information on restitution, termination and other related details. All this information is put under 3 categories: the front cover, the table of contents, and “items”. The items consist of 23 different subsections. 20 of these items have information that mainly relates to the franchising company. Sadly only about 2 pages have information that is meant for the franchises that you would want to buy. almost of the items that are included in this document are mandatory but there are a few items like the one relating to earning claims which may or may not be omitted. However, it is important that everything be clear to he new franchise purchasers. They need to know how much they stand to gain if they buy the franchise opportunity that the document presents. It is important to note that although the franchise disclosure document is an officially authorized requirement, there has been no authorized institution that analyzed it to ascertain it correctness. This explains why you should seek the services of a legal consultant or a lawyer when you are c considering buying a franchise.