Changes in FTC Franchise Rule

Excerpted from The FTC Franchise Rule (2008)

Edited by Susan Grueneberg and Ann Hurwitz

The franchisor's core obligations are to make disclosures to the prospective franchisee in conformity with the requirements for the Franchise Disclosure Document. The following prohibitions, broadly speaking, concern communications and conduct between any franchise seller, including the franchisor, and the prospective franchisee, and focus upon communications outside the confines of the Franchise Disclosure Document.

• Making a claim or representation that contradicts the information required to be disclosed in the Disclosure Document;
• Misrepresenting that any person purchased a franchise from the franchisor or operated a franchise of the type offered, or that such a person can provide an independent and reliable report about the franchise;
• Disseminating any "financial performance representations" to prospective franchisees that are inconsistent with the requirements of Item 19;
• Failing to make available written substantiation for financial performance representations;
• Failing to furnish a copy of the Disclosure Document earlier in the sales process than required if the franchisee makes a reasonable request;
• Failing to furnish a copy of the most recent Disclosure Document and quarterly updates upon reasonable request before the franchisee signs;
• Presenting for signing a franchise agreement that differs materially from that attached to the Disclosure Document;
• Disclaiming or requiring a prospective franchisee to waive reliance on any representation made in the Disclosure Document; and
• Failing to return the funds or deposits in accordance with conditions disclosed in the Disclosure Document.

Sponsoring Entity:

Forum Committee on Franchising