Under the Franchise Rule, a franchisor may make the required disclosures in one of two ways. A franchisor may use either the Federal Trade Commission (FTC) format or the Uniform Franchise Offering Circular (UFOC) format to make the required disclosures. The UFOC format has been prescribed by the North American Securities Administrators Association (NASAA).

Some of the states with franchise registration laws will not accept the FTC format. Therefore, many franchisors have adopted the UFOC format for disclosures. The two formats may not be used together. The disclosures must comply with all of the requirements of either the FTC format or the UFOC format.

FTC Format

The FTC's website (www.ftc.gov) contains detailed instructions and sample disclosures for compliance with the FTC format.

UFOC Format

Franchisors who choose the UFOC format must comply with the UFOC Guidelines, as amended by the NASAA. The FTC cover page must be provided to each potential franchisee, either in lieu of the UFOC cover page in non-registration states or along with the UFOC. If the UFOC is registered or used in one state, but will be used in another state without a franchise registration law, answers to state-specific questions must be changed to refer to the law of the state in which the UFOC is used.

If the UFOC is registered in a state, it must be updated as required by the state's franchise law. If the same UFOC is also adapted for use in a non-registration state, updating must occur as required by the law of the state where the UFOC is registered. If the UFOC is not registered in a state with a franchise registration law, it must be revised annually and updated quarterly as required by the Rule.

If the UFOC is used:

(1) the disclosure requirements of the Rule still apply, regardless of whether they would be required under state law;

(2) the Rule determines who is obligated to comply with the Rule, regardless of whether they would be required to make disclosures under state law;

(3) the timing of the disclosures is governed by the Rule, unless state law requires an earlier disclosure;

(4) no information may appear in a disclosure document not required by the Rule or by non-preempted state law, regardless of the format used, and no representations may be made that contradict a disclosure;

(5) failure to provide potential franchisees with final agreements at least five days before signing is a Rule violation, regardless of the format used; and

(6) failure to make promised refunds is a Rule violation, regardless of the format used.

The FTC will presume the sufficiency, adequacy, and accuracy of a UFOC that is registered by a state when it is used in that state.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.