The documentation that is provided by the franchisor to a potential franchisee prior to the completion of the sale is being replaced by a new document not only with a different name but also with some new rules.

As of July 2007, the Uniform Franchise Offering Circular (UFOC) has been renamed as the Franchise Disclosure Document or FDD by the Federal Trade Commission, the franchising regulator since the late 1970s. Franchisors have until July 1, 2008 to adopt the new format.

The FDD will continue to provide necessary information to the potential franchisee so that a knowledgeable purchase may be made. However, there are several revisions to the old UFOC that are noteworthy.

First Meeting Between Franchisor and Franchisee

Previously, the franchisor was required to provide a potential franchisee with the UFOC document at their first meeting. This will no longer apply. Franchisors or their representatives are permitted to have an initial meeting with a potential franchisee without offering the FDD at that meeting, but it needs to be provided at least 14 calendar days before the franchisee signs a contract.

Smoother Franchise Closings

Franchise closings are expected to go more smoothly. In the old UFOC, final documents were required to be provided 5 business days before closing. However in the FDD, the franchisor must provide the final agreement 7 calendar days before execution only if the franchisor makes major modifications on his/her own. Paying attention to calendar days rather than business days alleviates some of the prior confusion.
Electronic Delivery and Signature

The new Franchise Disclosure Document provides for more efficiency by electronic means. The franchisor must inform the franchisee as to what formats the documentation is available in so the franchisee is able to accept, download, and print the information. Also, signatures are acceptable in a variety of ways including security codes, passwords, and electronic signatures.

The Franchisor Must Tell All

Another important change in the new FDD is that the content includes more detailed information about direct and indirect parent companies. Disclosure of any lawsuits or bankruptcies must be included. Additionally, the franchisor has to reveal whether any officer of the franchise has any interest in any approved suppliers.
With regard to territory disclosure, the franchisor must include in the FDD information as to whether the franchisor or any affiliates make use of any other types of distribution channels such as the Internet, telemarketing, or catalog sales. Also, the franchisee must be notified of any restrictions imposed by the franchisor prohibiting previous or current franchisees from discussing their experiences with prospects.

Under the FDD, franchisors are also required to provide data that shows how many franchises over the past three years were sold, terminated or transferred. It is important to note that the franchisor selling a previously franchised channel must provide a supplemental disclosure with the name and contact information of the any previous owners from the prior five years. The franchisor must also note the reason for the changes in ownership.

Generally speaking, the amended Franchise Rule and Franchise Disclosure Document offers a much needed update from the original UFOC created in 1978. The process is expected to go much more efficiently for both the franchisor and franchisee.