The Federal FTC Franchise Disclosure Rule prohibits franchisors from sharing, discussing, giving, or showing prospective franchisees financial performance information unless the information is contained in the franchisor’s franchise disclosure document (FDD).
What about after the franchise agreement is signed? All rules are off. The FTC Franchise Disclosure Rule applies to the prospective franchisees. Once the franchisee signs the franchise agreement, the franchisee is no longer a prospect. The upshot is the FTC Franchise Disclosure Rule does not apply to the disclosing, sharing, discussing, giving, or showing franchisees financials information. Franchisors are free to share financials information post the signing of the franchise agreement.
Because they were no longer “prospective franchisees” when Haines showed them the profit and loss statements, showing them the statements did not violate the Franchise Rule. See 16 C.F.R. §§436.1(e) and 436.5(s).
Relo Franchise Services, Inc., Plaintiff v. Connor Gilman, et al., Defendants. Case No. 1:18-cv-578 Business Franchise Guide – Explanations, Laws, cases, rulings, new developments ¶16,350
One caution should be rendered. Commonly, franchisors will negotiate with existing franchisees about the purchase of new or additional franchises or opportunities. In this case, the existing franchisee may be considered a prospective franchisee in regards to the new or additional franchise and to wit, the franchisor should not share, discuss, give, or show prospective existing franchisees financial performance information unless the information is contained in the franchisor’s franchise disclosure document (FDD).
