An important protection for the person planning to buy a franchise is the FTC's Franchise Rule, put into effect October 21, 1979. The rule requires covered franchisors to supply a full disclosure of the information a prospective franchisee needs in order to make a rational decision about whether or not to invest. This disclosure must take place at the first personal contact where the subject of buying a franchise is discussed and at least 10 business days prior to signing any contract with the franchisee or accepting any money. This is a "cooling-off' period intended to prevent franchisees from jumping in without carefully reviewing and considering what they're doing.
This means a franchisor, franchise broker or anyone else representing franchises for sale has to present a disclosure document-the Uniform Franchise Circular Offering (UFOC)-containing extensive information about the franchise. Furthermore, you must be provided with completed contracts covering all material points at least five days prior to the actual date of execution of the documents. Again, this provides another cooling-off period and the chance to have an attorney review the contracts prior to execution.
Visit the FTC's Franchise and Business websiteto find out more about the Franchise Rule.
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State Laws
The FTC doesn't require franchisors or business opportunity sellers to register with it or any other government agency. However, several states do have registration rules requiring franchise sellers to register. Some of these states laws are tougher than others, but most have adopted the UFOC guidelines for their disclosure requirements.
It would be a mistake, however, to assume that simply because a franchise is registered with a state or provides some type of full disclosure document, you as a consumer are going to be protected from the possibility of failure or rip-off. The only thing that a state reviewing agency can do is ensure that the franchisor has responded and filed the necessary documents.
Franchise Registration States |
| These 14 states require a franchisor to register its UFOC and maintain a registration with the state agency indicated. If the company is authorized to sell franchises in one of these states, the company will be registered with the agencies listed here. |
| State | Agency | Telephone Number |
| California | Department of Corporations | (213) 576-7500 |
| Hawaii | Department of Commerce and Consumer Affairs, Securities Compliance | (808) 586-2722 |
| Illinois | Attorney General's Office, Franchise Division | (217) 782-1090 |
| Indiana | Securities Commissioner, Securities Division | (317) 232-6681 |
| Maryland | Attorney General's Office, Securities Division | (410) 576-6360 |
| Michigan | Attorney General's Office, Consumer Protection Division Antitrust and Franchise Unit | (517) 373-7117 |
| Minnesota | Minnesota Department of Commerce | (612) 296-4026 |
| New York | Department of Law | (212) 416-8200 |
| North Dakota | Office of the Securities Commissioner | (701) 328-2910 |
| Rhode Island | Division of Securities | (401) 222-3048 |
| South Dakota | Division of Securities | (605) 773-4823 |
| Virginia | State Corporation Commission, Division Of Securities And Retail Franchising | (804) 371-9051 |
| Washington | Department of Financial Institutions, Securities Division | (360) 902-8760 |
| Wisconsin | Wisconsin Securities Commission | (608) 261-9555 |
Source: The Small Business Encyclopedia, Start Your Own Business, Entrepreneur magazine and Entrepreneur's Be Your Own Boss.
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