Previously on our blog we talked about franchise registration. As part of franchise registration, state examiners, in some of the registration states, will review the contents of the franchise disclosure document [FDD]. The examiners look to see if the FDD conforms with state and federal laws and there are no facial inconsistencies.
Click here to read Which States Require a Filing or Franchise Registration? or visit: https://gettinslaw.com/franchising/2015/03/31/what-states-require-a-filing-or-registration/
What the examiners zero in on is difficult to determine. There are pages and pages of disclosures. There are pages and pages of rules about the required disclosures. Information is repeated, restated, referenced in a patchwork of the disclosures. Examiners may call out updated information or the examiners may take exception to disclosures and wording that was present in last year’s FDD where no issue was raised before. Everything is fair game.
When an examiner takes issue, a comment letter is issued. The franchise registration is stalled until the comments from the examiner are addressed.
Here is a listing of Common Mistakes to Avoid published by the Maryland Security Division:
1. When renewing or amending, make sure your application includes a black-lined copy of the complete revised FDD, including exhibits.
2. Do not ignore the requirement in Item 12 to specifically disclose whether or not the franchisor provides an “exclusive territory.”
3. Make sure the dollar figures on the FTC cover page match the corresponding dollar figures disclosed in Items 5 and 7, and that the franchise and company owned outlet totals disclosed in Table 1 of Item 20 match the corresponding totals in Table 3 and Table 4.
4. Include the correct “issuance date” on both the FTC cover page and receipt pages of the FDD.