The New FTC Franchise Rule – Franchise Disclosure Documents (FDD)
Since the new FTC Franchise Rule became effective in 2007, many persons wonder what the major differences are between the old Uniform Franchise Offering Circular (UFOC) and the new FTC Franchise Disclosure Document (FDD). Of particular interest to franchise companies is how long it takes to convert an old UFOC to the new FDD format. Franchise buyers wonder if anything has changed about when an FDD must be given to them under the new regulations.
FDD vs. UFOC
In summary, what the FTC’s new Franchise Disclosure Document or FDD format does is take the prior Uniform Franchise Offering Circular disclosures, modify them in certain respects and rename the document. It’s now called a Franchise Disclosure Document or FDD. There are still 23 individual Items (chapters) and although the revisions are not that substantive, they are numerous. A franchise attorney familiar with the new FDD format should be able to convert the old UFOC to a new FDD within ten to twenty hours, plus or minus. The Table of Contents for an FDD can be found within the information at the franchise a business page of the Franchise Foundations website.
FDD Phase In Period
The phase in period for the FDD is now over. The new FDD format was permissive starting July 1, 2007. It became mandatory starting July 1, 2008. So franchise companies cannot make any offers or sales using or distributing the old UFOC. The new FDD is the required format in all states as of July 1, 2008.
New FTC Franchise Rule Transactional Changes
A transactional change with the new FDD rules and regulations relates to the time a prospective franchisee must have the document in their hands before contacts can be signed or any money paid. The former rule said the UFOC had to be delivered at the “first personal meeting” and in hand for at least ten business days. A seperate, completed franchise agreement also had to be delivered to the prospective franchisee for at least five business days. Under the new FTC franchise rule, the first personal meeting requirement is eliminated, replaced with a fourteen calendar day minimum review period that simplifies the complexity of completing franchise transactions. There’s another seven calendar day contract reiew period that kicks in if the franchise company makes unilateral and material changes to the franchise agreement (or other agreement) attached to the FDD.
Electronic Delivery of FDD
Stepping into the 21st century, the new FTC Rule permits delivery of the FDD by electronic means, such as email and downloading from a website. The cover page of the FDD now contains the franchise company’s website and email address.
Copyright 2008-2009 Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved
For more informatiion, visit the Franchise Foundations website.
Franchise Attorney and internationally-recognized franchise expert, known in the industry as Mr. Franchise, Mr. Murphy is also an author, teacher and former franchise owner. He holds degrees in Business Administration (B.S.B.A.) and Law (J.D.) from the University of San Francisco and a Master’s degree in Business Administration (M.B.A.) from San Francisco State University.
For the past twenty-eight years he has specialized exclusively in the franchise industry as a San Francisco franchise attorney and owned a very successful franchise in the home improvement field. He has written over 30 publications, including four books on franchising and one book on trade secrets.
Mr. Franchise instructs franchise company personnel in best franchise practices and teaches franchise, licensing and intellectual property courses to attorneys. He has drafted, reviewed and negotiated over 500 Franchise Disclosure Documents.
Mr. Franchise is a franchise attorney and Director of Operations for Franchise Foundations a San Francisco-based professional law corporation.
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