Franchise Disclosure Documents – The Cover Page

The overview that follows highlights key changes and provides sample disclosures for each item in the disclosure document required by the amended Rule.

The Cover Page

The disclosure document begins with a cover page that provides prospective franchiseeswith information about the franchise being offered for sale. The amended Rule updates theoriginal cover page to include references to the franchisor’s email address and website. It alsoprovides prospective franchisees with additional sources of information, including a reference tothe FTC’s Consumer’s Guide to Buying a Franchise (“Guide”).9 While the amended Ruleprohibits the inclusion of links to external materials in a disclosure document, franchisors may, ifthey wish, link to the Guide on the page on the FTC’s web site where that specific document isfound.

When preparing the cover page, franchisors must follow the specific order and form setout in the Rule. The title of the cover page is “FRANCHISE DISCLOSURE DOCUMENT,”and it must appear in both capital letters and boldface type. The cover page must next state thefranchisor’s name, type of business organization, principal business address, telephone number,and, if applicable, the franchisor’s email address and the address of the primary Internet homepage of the system being offered for sale. Franchisors need not list every home page addressowned by, or associated with, the franchise system. The cover page must also include a sampleof the primary business trademark that franchisees will use in the business and provide a briefdescription of the franchised business. Certain prescribed statements must also be included inthe cover page.

Reference to Item 5 and Item 7 Fees and Investment

The cover page contains a modified version of the reference to Item 5 and Item 7 fees andinvestment required by the UFOC Guidelines. The UFOC Guidelines require that the cover pagestate the total amounts listed in the Item 5 and Item 7 disclosures. Under the amended Rule, thecover page reference makes clear that Item 5 initial fees disclosures are a subset of the Item 7total investment disclosure. The amended Rule makes this clear by specifying a standard formatthat franchisors must follow in referencing Item 5 and Item 7 on the cover page. That specifiedformat is as follows:
The total investment necessary to begin operation of a [franchise systemname] franchise is [the total amount of Item 7]. This includes [the totalamount in Item 5] that must be paid to the franchisor or affiliate.

Available Disclosure Formats

Franchisors may use a wide variety of means for furnishing disclosure documents,including email, CD ROM, or the Internet (such as a password protected portion of a website). Ifa franchisor makes disclosure documents available in more than one medium, it may wish toadvise prospects that they can obtain a copy in a medium that is more convenient to them. Tothat end, franchisors may include the following optional statement in the cover page:
You may wish to receive your disclosure document in another format that ismore convenient to you. To discuss the availability of disclosures indifferent formats, contact [name or office] at [address] and [telephonenumber].

For purposes of this disclosure, an “address” may be an email address, business address, or both.

Issuance Date

A franchisor must include the issuance date for the disclosure document on its coverpage. The “issuance” date is very flexible, meaning any date upon which the franchisor finalizesthat version of the disclosure document for future use. States that require franchisors to registertheir disclosure documents, however, may use the term “effective date,” meaning the date uponwhich the state formally approves registration of the disclosure document. Where a franchisorseeks registration in one or more states, the franchisor may use, in lieu of an issuance date, an“effective” date consistent with state approval of the document. A franchisor obtaining aneffective date from a registration state may also use the term “effective date,” even in nonregistrationstates.

Inclusion of State Information on the Cover Page

State law may require, or state franchise examiners may request, that franchisors includerisk factors or other information in the cover page. The amended Rule specifically allowsflexibility on this point. Franchisors are always permitted to comply with state-specificrequirements by adding such required information, whether on the cover page, in a separate statespecificcover page, or in an addendum.
CREDIT: The content of this post has been taken from the Federal Trade Commission’s document, Franchise Rule Compliance Guide.

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