Ftc Franchise Rule & Ftc Compliance

When selling a franchise in New York, it is important for you to be aware of the FTC franchise rule. This is the Federal Trade Commission Rule on Franchising and Business Opportunity Ventures, which is otherwise known as the Original Rule. This is one of the most important rules you will need to know before starting a franchise in New York.

The Original Rule

The purpose of the FTC franchise rule is to fight fraud in franchise and business opportunities.

The rule was also meant to establish:

. what constitutes a franchise, and what does not;
. federally recognized exemptions from the pre-sale disclosure requirements; and
. the form of the pre-sale disclosure document provided to franchise and business opportunity purchasers.

Since the establishment of the FTC franchise rule, the original disclosure document has been replaced by the Franchise Disclosure Document (FDD). If you have questions regarding the FTC franchise rule, or the Franchise Disclosure Document, you can seek advice from a New York franchise lawyer.

The New Rule

After several revisions over the years, the guidelines established by the Original Rule have evolved into the New Rule (2007). In the New Rule, the FTC established new guidelines for the franchise disclosure process, including what must be provided in the FDD. The New Rule outlines required procedures such as exemptions for franchise fees under $500, the timing of delivery of disclosures and the contents of the FDD.

Information that is required in the FDD by the FTC franchise rule includes a bankruptcy and litigation history, initial franchise fees, the franchisee's obligations and financing documents.

Information Required in the Franchise Disclosure Document

When providing a bankruptcy and litigation history in the FDD, you must include the history of any bankruptcies or litigation that your business has experienced.

In addition, initial franchise fees must also be disclosed. This includes all payments and commitments to pay for goods and/or services, as well as the standard initial franchise fee.

A franchisee's obligations also must be disclosed in your agreements, with cross-references to the particular FDD Items that describe the obligations. These may include obligations to purchase goods and services that your franchise business provides.

And finally, financing terms offered to franchisees must be disclosed.

When you start to franchise in New York, a New York franchise lawyer can make sure that you abide by the New Rule, so that you don't make costly mistakes that jeopardize the entire franchise process.