The U.S. federal government and the governments of many states have laws that govern franchising. Violating these laws will expose you, as a franchisor, to costly litigation, damages, and penalties.
Complying with franchising laws is critical for risk minimization. To help ensure that you comply with the federal and state franchise laws, you should consult The Johnson Franchise Law Firm before you begin the franchising process.
In 2007, the U.S. Federal Trade Commission (the “FTC”) issued revised regulations governing franchise disclosure. These rules are found in the U.S. Code of Federal Regulations, 16 C.F.R. Part 436. These rules are referred to, collectively, as the “FTC Franchise Rule” or, more simply, as the “Franchise Rule.”
The Franchise Rule requires most franchisors to provide prospective franchisees with information. This process is called “disclosure.” There are some exemptions; i.e., situations where a franchisor is selling a franchise, but where the franchisor does not have to comply with the Franchise Rule. These exemptions include:
The Franchise Rule specifies the form and content of the disclosures a franchisor must give. The disclosures are shown in a “Franchise Disclosure Document,” or an “FDD.” The predecessor of the FDD was the “Uniform Franchise Offering Circular,” or the “UFOC.” The Franchise Rule also specifies the timing of delivery of the FDD. The federal Franchise Rule is the law in all jurisdictions in the United States.
The FDD must disclose literally hundreds of facts about the franchisor, the franchise transaction, and the franchise documents. These facts are consolidated into sections of the FDD called “Items.” The FDD must contain 23 Items, including:
At The Johnson Franchise Law Firm, we advise you how to avoid violating the franchise laws. We also draft your franchise documents and update them, and keep your state registration filings current. As franchise attorneys, we advise you on the complex exemptions that may be available to you under the federal Franchise Rule and state franchising laws.
At The Johnson Franchise Law Firm, our focus is on franchise laws. With over 20 years of experience, attorney Rick Johnson understands the ins and outs of franchising laws and guides your company away from costly pitfalls. To take your business to the next level through domestic or international franchise development, please contact The Johnson Franchise Law Firm today.