#FRANCHISE DISCLOSURE DOCUMENT ILLINOIS TEMPLATE LICENSE#
The Franchise Rule requires that the disclosure portion of the FDD be written in “Plain English” and not in legalese and provide the potential franchisee with specified categories of information about the franchisor and the franchise offering including information about the franchisor’s business, the terms of the relationship and the rights and obligations of the license sufficient for prospective franchisees to make an informed decision before entering into a franchise relationship.
*Of course, as with any such large regulation, there are significant additional and/or alternative conditions and aspects to these requirements at the federal and state level, but I am going to gloss over them here because they are a bit too technical for this type of article.įranchisors are required to provide the FDD to prospective franchisees at least fourteen days prior to them signing the franchise agreement, and the franchisee is entitled to receive the completed Franchise Agreement at least seven days prior to signing it. According to the FTC, the Franchise Rule is “designed to enable potential franchisees to protect themselves before investing by providing them with information essential to an assessment of the potential risks and benefits, to meaningful comparisons with other investments, and to further investigation of the franchise opportunity.” The Franchise Rule requires that franchisors provide the presale disclosure document (the “FDD”) to prospective franchisees necessary for them to make an informed decision prior to entering into a franchise relationship. Pre-Sale Disclosure and the Franchise Disclosure Document Under a Business Format Franchise the franchise system generally provides operating manuals, training, brand standards, quality control, a marketing strategy, etc.
Under a Business Format Franchise, the type of franchising most identifiable to the average person, the franchise relationship generally includes the entire business format and not simply the franchisor’s trade name, products and services. (3) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a requirement payment or commits to make a required payment to the franchisor or its affiliate.” (2) The franchisor will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation and (1) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark Under the Franchise Rule, the FTC defines a “franchise” in Section 436.1(h) as follows:Ī “Franchise means any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that: While most states have adopted the amended Franchise Rule, in some states the rules are still different, including but not limited to filing requirements, the definition of what is a franchise, and some states also have relationship laws that govern the conduct between the franchisor and franchisee and different from the Federal Rule allow a franchisee to sue the franchisor for violation of The Rule (the private right of action).ĭefinition of a Franchise under the Franchise Rule When the Franchise Rule changed in 2007, much of what was included in the UFOC was adopted for the new FTC disclosure document called the Franchise Disclosure Document (FDD). Under the old NASAA requirements franchisors also made disclosure under a document then called the Uniform Franchise Offering Circular (“UFOC”) that was substantially similar to what the FTC’s disclosure required. Prior to the amendment, the FTC also accepted as adequate disclosure a franchisor’s compliance with the disclosure guidelines that had been established by the North American Securities Administrators Association (NASAA). The Franchise Rule was significantly amended in 2007. Those FTC requirements are generally referred to as the “Franchise Rule”. The FTC is the Federal agency that governs the manner in which a franchise is offered for sale in the United States and which, in 1978, defined what a franchise is and adopted disclosure requirements and rules for offering franchises.
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