The franchise disclosure document [FDD] has been updated for the New Year. There are prospective franchisees in the pipeline. You have been talking to them, they may have attended discovery day. But, they have not signed the franchise agreement. The updated FDD is issued. Should you give them a copy of the new updated disclosure document?
The best answer is: give prospective franchisees a copy of the updated franchise disclosure document and wait another 14 days [or 10 business days] before signing the franchise agreement.
That is my answer, but let’s see what the FTC says. As part of FTC Amended Franchise Rule FAQ’s, this question is posed:
If a prospective franchisee has received a UFOC disclosure document prior to July 1, 2008, but has not purchased a franchise by that date, must the franchisor provide the prospective franchisee with its Franchise Disclosure Document (“FDD”) 14 calendar days before he or she pays any money or signs a binding agreement in connection with the proposed franchise sale?
Answer: The Rule does not require a franchisor to give its FDD to a prospective franchisee who has already received a UFOC disclosure document prior to July 1, 2008, unless he or she makes a reasonable request for the most recent disclosure document and quarterly updates pursuant to Section 436.9(f) of the Rule.
A little history is in order. Previously the franchise disclosure document [FDD] was called the UFOC or Uniform Franchise Offering Circular. The FTC amended franchise disclosure rules and the UFOC became the FDD.
The FTC’s response above suggests re-disclosure is not indicated unless the prospective franchisee asks for a copy. But, think about it. The information in the previous year’s FDD is dated. There are new audited financials. There may be changes to the numbers of franchise outlets. Many things have happened over the past year. Some of those things may change if franchisee chooses to buy a franchise or not. They are material.
After the franchise sale, you don’t want the franchisee to say: ‘If I knew, I won’t have bought the franchise.’ Don’t give a franchisee a reason to complain. If things go awry, one of the primary franchisee allegations is that they were not disclosed properly – they were not given the material information- they were misled.
Give prospective franchisees a copy of the updated disclosure document. Allow another hold period to elapse before signing the franchise agreement.