• What is a UFOC?
  A uniform franchise offering circular is a detailed disclosure document for each potential franchise purchaser. Included in the disclosure document is over twenty different items of information about the franchise, including the history of the company, required fees and investment costs, information about the franchisor, and any litigation in which s/he has been involved. When you are given the disclosure document, you must sign and date a statement acknowledging that you received it.

   

• What is the regulatory framework governing franchises?
  There are three distinct bodies of law governing franchising: federal and state registration and disclosure laws, "franchise relationship" laws, and "business opportunity" laws.

  State Franchise Registration and Disclosure Laws
  State registration and disclosure laws provide that, unless an exemption is available, no offer or sale of a franchise can take place until the franchisor has registered a UFOC with the state in which the sale is occurring, the UFOC has been approved and the potential purchaser has received a copy prior to signing any agreements. To be approved, a UFOC must honestly and in detail explain all of the material facts of the franchise and the sale. These registration and disclosure laws are looking to prohibit misrepresentation in the offering of franchises to potential buyers and to make sure that these potential buyers have at their disposal all of the necessary information to make an informed decision. Criminal and civil penalties may apply to franchisors who do not fully disclose all of the necessary information or who misrepresent the truth. Both state and federal agencies permit the UFOC to largely take the form of the UFOC guidelines (www.nasaa.org/nasaa/scripts/fu_display_list.asp?ptid=34), promulgated by the North American Securities Administrators Association (NASAA).

  New York Law
  The New York Franchise Act states that before any franchise sales activity can take place in this state, the franchisor is required to submit a UFOC for approval to the New York State Department of Law. Sales activity in New York includes all situations in which the seller lives in New York, the buyer lives in New York, the deal is made in New York or the store will be located in New York. Should incomplete or questionable material be submitted to the state, the state Attorney General reserves the right to investigate the franchisor and/or the company.

  Strict rules govern when the potential franchisee must receive a copy of the UFOC. It must be given to the buyer at least ten days before signing an agreement or at the first meeting of the franchisor and the franchisee, whichever comes first. Failure to comply with these measures could result in an investigation by the Office of the Attorney General, and may also result in a lawsuit.

  The Federal Trade Commission Franchise Rule
  The FTC Rule states that franchisors must make full pre-sale disclosure in a prospectus, or UFOC. However, unlike the New York State law, the FTC Rule does not require that the prospectus be approved prior to distribution. Enforcement under the Rule is bolstered by penalties of up to $10,000 per violation.

  Franchise Relationship Laws
  A franchise agreement, like any other contract, has a fixed term. Also like any other agreement, a franchise contract may be terminated before it actually expires. Eighteen states and the District of Columbia (but not New York) have enacted laws limiting the ability of the franchisor to terminate the deal. Many states require "just cause" for termination. Just cause is defined as the failure of the franchisee to comply with some aspect of the deal as put forth in the contract, as well as the failure of the franchisee to correct, or cure, the problem once it has been pointed out. Other relationship laws address such aspects of the franchise relationship as discriminatory treatment, market protections, ability of franchisees to belong to franchise associations and the minimum advance notice of termination or expiration which must be given to franchisees.

  Business Opportunity Laws
  Twenty-three states have enacted business opportunity laws. These laws regulate the sale of opportunities to engage in new business ventures, so they often impact franchises. The laws require registration and disclosure in the same manner as state franchise registration laws do and usually also require the posting of some kind of financial security investment. Some states exclude franchise offerings from business opportunity laws because they comply with federal or state franchise regulations, while other states hold franchises to both the business opportunity laws and the state regulations.

Source: New York State Office of Attorney General