Differences Between Franchise UFOC and FDD
The franchise UFOC (Uniform
Franchise Offer Circular) has been replaced by the new franchise
disclosure document (FDD). Whether you are trying to write this key
franchise document by yourself or you are using a Franchise
Disclosure Document (FDD) Template to get it done, you need to be
familiar with the key differences between the old and the new
disclosure requirements. This information will be helpful when
preparing your franchise disclosure, when searching for FDD templates,
and when updating your existing disclosure document.
Changes in the Franchise UFOC Rule
The franchise UFOC was in use
until July1, 2008. After changes in the Federal Trade Commission
Rules (FTC rules), new requirements were introduced. Franchise UFOC
disclosures are now referred to as Franchise Disclosure Documents
(FDDs). There are many positive and negative changes for both
franchisors and franchisees, and many changes that are positive for
franchisors while bad for franchisees and vice versa.
The main changes concern financial statements, audits, broker
disclosures, litigation, and performance presentation.
Financial statements
- The franchise financial statement is an obligatory requirement for
the new FDD, as it was for the old franchise UFOC document. The purpose
of this statement is to provide potential franchisees with enough
financial information about the franchisor so they can evaluate the
overall condition of the business. The new FTC rule allows franchisors
to prepare their financial statements according to the generally
accepted accounting principles (GAAP). Companies that have been
inactive during the three or more years prior to their franchise
registration are allowed to submit unaudited franchise financial
statements.
Brokers -
Franchise UFOC requirements prior to their change in 2008 required any
information about franchise brokers to be included in the franchise
disclosure document. According to the new rule, this information can be
omitted.
Litigation -
The new FTC rules are significantly liberated in terms of litigation
information that must be disclosed by franchisors in their disclosure
documents. According to the old FTC rules, any franchise UFOC had to
disclose full description of all litigations filed against franchisees
and initiated by franchisors during the last 10 years. This time span
is limited to 1 year only and comprehensive description is no longer
required.
Performance
presentation - While performance presentations couldn’t
be part of old franchise UFOC documents, the amendments of the FTC rule
allows disclosing such information. Whether or not performance
presentations will be included in the FDD is really up to franchisors,
as this is not an obligatory part of the disclosure document. If they
decide to include such information, they must make sure it is prepared
in accordance with the new FTC rule.
Other changes
- Many other new requirements are also introduced with the changes in
the FTC rule: new franchise UFOC documents that include lists of
approved suppliers must disclose if any of their employees is involved
in any of the approved suppliers' companies; franchised units (open and
closed) during the last three years must be presented in tabular format
and included in the FDD and so on.
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