Franchising has become increasingly a vertical structured system. There are franchisees owning several numerous territories. There are third party sellers and advisers all with varying licenses and developmental rights. Within the franchise industry there is lack of the consistency about the definitions used to describe the tiers under the vertical franchise structures. And, there is confusion about the appropriate and required disclosure regarding these tiers. The NASAA has stepped in to provide some clarity!
Back on September 16, 2014, the Franchise and Business Opportunity Project Group of the North American Security Administrators Association [NASAA] finalized Multi State Commentary on ‘practical guidance for disclosing certain multi-unit franchising arrangements that have become common in franchising but that are not specifically addressed under NASAA’s 2008 Franchise Registration and Disclosure Guidelines or the Federal Trade Commission’s [“FTC’s”] Franchise Rule.’
Below is a table of the 3 types of the franchise structures identified by the NASAA guidelines.
The effective date of this Commentary is March 16, 2014. If the franchisor or subfranchisor has an effective Franchise Disclosure Document, the franchisor or subfranchisor must comply with the Commentary 120 days after the franchisor’s or subfranchisor’s next fiscal year end- April 30th for most franchisor/subfranchisors.
If the franchise system offers one of these structures, numerous tweaks may need to be made to the existing franchise disclosure document and a new disclosure document may need to drafted.
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Trademarking and Franchise Law