Items in Uniform Franchise Offering Circular #1
Item 1: The Franchisor, Its Predecessors and Affiliates
An offering circular will give you the franchisor’s background and that of his predecessors and affiliates. A predecessor is defined as “a person from whom the franchisor acquired directly or indirectly the major portion of its assets.” The FTC amended rule adds to the definition “from whom the franchisor obtained a license to use the trademark or trade secret in the franchise operation.”
Examine the section on the franchisor and its predecessors and affiliates closely. Read about the background of the business and the business experiences of its principal officers. If possible, run a credit check on the company and its previous officers. In addition, any information you can obtain regarding the record of the previous businesses – including other franchise businesses – with which the principals were associated is of paramount importance. This information can also help you make some type of forecast about the possibility of your own success.
The amended rule makes all franchise sellers liable under Section 5 of the FTC Act. The franchisor’s parents must be disclosed to business experience of parent that provides products or services to franchises; and must disclose business experience of parent’s executives that exercise management responsibility regarding sale of franchises. Franchisor must disclose any competitor in which a franchisor officer has an interest.
Item 2: Business Experience
This section of a circular will give you some personal information on the officers and directors of the franchise company for the past five years. The amended rule generally mirrors the present rule, but extends the disclosure of business experience to any “director, trustee, general partner, officer, and subfranchisor of any parent who will have management responsibility relating to hte offered franchises.” “Officer” is defined as “any individual with significant management responsibility for marketing and/or servicing of franchises, such as the chief executive and chief operating officers and the financial, franchise marketing, training and service officers.” It also includes de facto officers who perform such duties but whose title does not reflect the nature of the job. If you can check out their backgrounds, both their business experience and the views of their former acquaintances or competitors, you will improve your chances of succeeding with your new endeavour. In addition, you should make every attempt to get to know these people as much as you can. Ask to see the head person before you put your money down. Remember: this person will be a vital part of your story of success, since his or her endeavors will directly affect you. Under the new amendded rule, the business experience of executives of the parent who exercise management responsibility regarding the sale or operation of franchises of the franchisor must be disclosed but broker disclosures are eliminated.
Check out any affiliates listed in the second section of the circular to make sure that all vital items or services are not supplied by relatives or friends of the franchisor. If some services are supplied by family and friends, this may drastically change the profitability of your franchise because of inflated, non-competitive prices.
