The FTC is serving up a new and improved franchise rule, but is it what small-business owners ordered?
The FTC's efforts to revise its 1979 franchise Rule may finally be heading toward completion. The commissioners are now looking at staff recommendations to expand pre-sale disclosures that franchisors are required to make and to develop a separate rule for business opportunity sales. These differ from franchise sales in that they are of shorter duration and involve no trademark or intellectual property. Some business opportunities-those where a seller provides locations or pre-existing accounts-are now covered under the franchise regulation.
The FTC staff's backing of a new business opportunity rule won praise from Matt Shay, executive vice president of the International Franchise Association. He's enthusiastic about the other recommendations, too, including the addition of new pre-sale disclosures in the Uniform Franchise Offering Circular about franchisor-initiated litigation, confidentiality clauses and trademark-specific franchisee associations. "Some franchisors may have growing pains dealing with the new disclosures, but the staff has done a good job of modernizing the rule," Shay says.
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