Underneath the Golden Boy - Robson Hall Faculty of Law

Franchise Law Consultation Paper 2007 269
The FTC Rule and state laws require the franchisor to provide the
disclosure document at least ten business days before the franchisee pays any
consideration or signs a contract. A copy of the franchise agreement with all
terms completed and all related agreements must be delivered at least five
business days before signing.
Currently, most U.S. franchisors use a uniform disclosure format called the
Uniform Franchise Offering Circular (“UFOC”), produced by the North
American Securities Administrators Association (“NASAA”). 154 The UFOC has
been accepted by the FTC and by state regulators. 155 The UFOC and the FTC
Rule require similar disclosures, including a description of: (1) the franchisor and
its business; (2) prior litigation and bankruptcies relating to the franchisor; (3)
initial and ongoing fees; (4) obligations of the parties and other terms of the
contract; (5) restrictions on sales; and (6) rights to renew and terminate the
franchise. Both formats also require substantiation of any earnings claims,
statistics on existing franchisees, contact information for franchisees, and
audited financial statements. 156
The UFOC Guidelines also contain disclosure provisions in addition to
those required under the FTC Rule, including information about regulations
specific to the franchise industry, litigation or bankruptcy involving a franchisor’s
predecessor, computer system requirements and contact information for former
franchisees. 157 As well, under amendments made in 1993, the disclosure must be
154
North American Securities Administrators Association [NASAA], Uniform Franchise Offering
Circular Guidelines, online:
(date
accessed: May 12, 2007). According to Stadfeld, “the states refused to follow the FTC’s
disclosure format largely because they sought more comprehensive regulation… these states
promulgated a more rigorous disclosure format” – the UFOC: L.S. Stadfeld, Federal Franchise
Sales Law Updated for First Time Since 1978, Weston, Patrick, Willard & Redding, P.A.,
Boston, MA, online: (date
accessed: May 12, 2007)
155
The FTC authorized franchisors to use the UFOC Guidelines to comply with the FTC Rule’s
disclosure requirements because the Guidelines, in their entirety, provided consumer protection
equal to or greater than the Rule: U.S. Federal Trade Commission, 16 CFR Parts 436 and 437:
Disclosure Requirements and Prohibitions Concerning Franchising; Disclosure Requirements
and Prohibitions Concerning Business Opportunities (2007), online:
(date accessed: May
12, 2007).
156
U.S. Federal Trade Commission, supra note 1. The FTC Format is not accepted by state
regulators in states with registration requirements: Stadfield, supra note 3.
157
Ibid. at note 9.