"Franchise Disclosure Document" Replaces "Uniform Franchise Offering Circular "
If you have been involved in a franchise deal in the past few years, you may be more familiar with the latter term in the title: the Uniform Franchise Offering Circular, or the UFOC. However, as of July 2007, the Federal Trade Commission has replaced the UFOC with the FDD. Despite this change, the term "UFOC" is still widely and incorrectly used. Now, the FDD is the document that a franchisor must provide to potential franchisees prior to entering into a contract.
Like the UFOC, the FDD discloses details to potential franchisees in order to facilitate an educated buying decision. However, the FDD is different form the UFOC is several aspects.
Differences between the FDD and the old UFOC include different time requirements governing when such disclosures must be made. Also, unlike the UFOC, both parties can use passwords and electronic signatures to electrically sign an FDD.
Perhaps the most important change provided by the FDD is the requirement that the franchisor disclose more detailed information to the franchisee. Such newly required disclosures include information about parent companies; information regarding lawsuits or bankruptcies; whether any interest exists between approved suppliers and franchise executives; information about the types of distribution channels the franchisor or other franchisees use; and finally data regarding how many franchises were sold, terminated, or transferred over the past three years.
As you consider if and which franchise to purchase, be sure to pay close attention to the FDD. It should be an in-depth disclosure, with each paragraph having legal or strategic significance. For guidance with the UFOC, contact an experienced franchise attorney and a franchise consultant.
