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Importance of Franchise Disclosure Documents

Times have been difficult for all of us since the economic crisis of the 2000s, brought on, in part, by the carelessness of big business. But one light continued to shine through the clouds of economic downturn: franchising. How has this economic unit managed to weather the storm?

Franchising Works for These Times

Many people lost jobs during the 2008-2009 economic collapse. No socio-economic level was spared. Layoffs reverberated from the most basic levels of industry workers to top executives in some of our largest companies. The survival of franchising is attributed to the sizable pool of “middle managers” who found themselves out on the street. These individuals possessed sound and substantial management, marketing and other useful business skills. They also had capital saved up ̶ either through prudent household finance or receipt of some severance package when their jobs were eliminated. However, as managers in large organizations, these newest members of the unemployed were not accustomed to the risks taken by the more independent entrepreneur. What better answer than a franchise: a proven concept that eliminates the need for coming up with a new formula for success, backup support from a solid organization, and a very rigid structure that sounds particularly familiar to someone who spent years working in a large organization. Taking their savings and business skills, and seeing few other options for continuing to earn a livelihood, these former middle managers began shopping around for the right franchise concept and organization. True, an economic downturn means fewer sales of goods and services. However, our society continues to find comfort in the familiar and expresses wariness of the unknown. So the business we conduct today increasingly occurs through franchises.

Importance of Franchise Disclosure Documents

Properly prepared franchise papers are critical to the success of any franchise. Primary documents requiring flawless execution include the franchise disclosure documents (FDDs), as well as the mandated exhibits, most notably the franchise agreement. These document packages must follow the new Federal Trade Commission (FTC) disclosure documents format, which was created in the wake of the FTC’s 2008 overhaul and revision of the franchise disclosure rules, requirements and procedures. From a legal and regulatory standpoint, without these documents a franchisor may be prohibited from offering franchises, particularly in those states that regulate franchises. Perhaps even worse, in some situations the franchisor might be ordered to rescind previously closed sales of franchise units—a potentially costlier consequence than a pre-sale prohibition. From a marketing standpoint, the lack of proper disclosure documents drives potential franchisees to competitors. Even with the continuing scale of franchising expansion, the need to offer an attractive franchise deal remains important. The FDD is a key tool in that process.

The Law Office of Neal J. Blaher, located in Maitland, represents clients in the Orlando area in securities arbitration, franchising and trademark, and can be reached at (407) 696-5050 or njblaher@blaherlaw.com