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.
Alaska Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule ensures transparency and compliance in the franchising industry. The following are the key components that must be included in the checklist: 1. Business Background: The franchisor should provide a detailed background of their business, including its formation, years of operation, and any relevant experience in the industry. 2. Litigation History: Any involvement in past or ongoing litigation, including lawsuits, arbitration, or government actions, must be disclosed to the prospective franchisee. 3. Bankruptcy History: Franchisors should disclose whether they or any of their key personnel have filed for bankruptcy in the past, as it indicates financial resilience or previous financial challenges. 4. Franchise Fee and Additional Payments: The checklist should clearly outline the initial franchise fee, along with any ongoing royalties, advertising contributions, or other financial obligations the franchisee will be responsible for. 5. Initial Investment Costs: All costs associated with starting the franchise, including real estate, equipment, inventory, and working capital, should be listed and explained in detail. 6. Financing Options: If the franchisor offers any financing assistance, it should be defined and outlined, including whether they have relationships with third-party lenders. 7. Training and Support: The checklist should describe the training programs available to franchisees, who conducts the training, and the duration and cost associated with it. Ongoing support should also be highlighted. 8. Territory Rights: Franchisees need to understand the exclusivity and geographic boundaries of their territory, as well as any territorial restrictions or limitations imposed by the franchisor. 9. Intellectual Property: Franchisees must be made aware of any trademarks, copyrights, or patents, including limitations on their use and any ongoing fees related to their usage. 10. Renewal and Termination: Franchisees should be informed of the terms and conditions for renewing their franchise agreement, as well as the circumstances under which termination may occur. 11. Financial Performance Representations: If the franchisor makes any claims about the potential earnings or financial performance of the franchise, it must be clearly mentioned, along with supporting documents or disclaimers. 12. Current and Former Franchisees: A list that includes current and former franchisees, along with their contact information, should be provided to the prospective franchisee, allowing them to conduct due diligence and gather feedback. By adhering to the FTC Franchise and Business Opportunity Rule, the Alaska Checklist ensures that prospective franchisees have access to all necessary information before making an informed decision about investing in a particular franchise. This promotes transparency and protects both the franchisor and the franchisee in the long run.
