A franchise or business opportunity seller must give the prospective buyer a detailed disclosure document at least ten (10) business days before the buyer pays any money or legally commit himself to a purchase. The disclosure document includes:
" Names, addresses, and telephone numbers of at least 10 previous purchasers who live closest to the buyer;
" A fully audited financial statement of the seller;
" Background and experience of the business's key executives;
" Cost of starting and maintaining the business; and
" The responsibilities buyer and the seller will have to each other once the buyer has invested in the opportunity.
Franchise sellers also must tell a prospective buyer in writing the number and percentage of owners who have failed.
New York Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule 1. Introduction to the FTC Franchise and Business Opportunity Rule: The New York Checklist Regarding Matters that must be Disclosed to Prospective Franchisee is a comprehensive guideline to ensure compliance with the Federal Trade Commission's (FTC) Franchise and Business Opportunity Rule. This rule aims to protect prospective franchisees by providing them with essential information they need to make informed business decisions. 2. Required Disclosures: The checklist outlines the specific matters that franchisors must disclose to prospective franchisees in accordance with the FTC Rule. These disclosures include information pertaining to the franchisor's business experience, financial statements, litigation history, initial and ongoing costs, restrictions on the franchisee's business operations, territory, trademarks, training and support, and termination and renewal terms. 3. Item-by-Item Disclosure Requirements: To comply with the Rule, the checklist breaks down the required disclosures into individual items. These items cover essential aspects of the franchise opportunity, and franchisors must address each of them in a detailed and transparent manner. Examples of items include the franchisor's identity and history, any exclusive territory rights granted, initial franchise fees, ongoing royalties, advertising fees, and any obligations related to minimum purchases. 4. Financial Performance Representations: The FTC Rule permits franchisors to provide information regarding the actual or potential financial performance of their franchises. If the franchisor chooses to do so, the checklist outlines the requirements for making such representations and advises franchisors to have a reasonable basis for these claims, providing supporting documentation. 5. Additional State-Specific Requirements: In addition to the FTC Rule, the checklist may also include any state-specific requirements for franchisors operating in New York. These requirements may vary and could include additional disclosures or filings with state authorities. Types of New York Checklists Regarding Matters that must be Disclosed to Prospective Franchisee: — New York FTC Franchise Rule Checklist: This checklist specifically focuses on the matters that must be disclosed to franchisees according to the FTC Franchise Rule. It includes all the necessary information required to comply with federal regulations. — New York State-Specific Franchise Disclosure Checklist: This checklist highlights additional state-specific requirements that franchisors operating in New York must adhere to. It covers any additional disclosures or filings needed beyond the federal requirements. — New York Financial Performance Representation Checklist: This checklist focuses primarily on the specific requirements and guidelines for making financial performance representations to prospective franchisees in New York. It ensures that any financial claims made conform with both federal and state regulations. By following the New York Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule, franchisors can ensure compliance with the law, provide transparency to prospective franchisees, and foster a fair and ethical franchising environment.
