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.
The Alabama Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is an essential document that outlines the necessary information that franchisors must disclose to potential franchisees within Alabama. Franchising is a regulated industry, and the Federal Trade Commission (FTC) has set guidelines to ensure transparency and protect potential business owners. Here are some key points that should be included in the Alabama Checklist: 1. Franchisor's Background and Experience: Franchisors must provide detailed information about their background, experience, and any criminal or litigation history of the company's key personnel. 2. Business and Operating Costs: The checklist should cover all likely expenses involved in running the franchise, including initial investment, ongoing fees, royalties, marketing fees, and potential operational costs. It should also outline any financial assistance options available. 3. Territory and Exclusive Rights: Franchisees need to be aware of any territorial restrictions or exclusive rights granted by the franchisor. The checklist should specify if the territory is protected, and if so, the extent of protection and any conditions or limitations. 4. Franchise Fees and Payment Terms: Detailed information about initial franchise fees, ongoing royalty payments, and other costs should be clearly outlined. Payment terms, refund policies, and potential penalties or fines should also be included. 5. Intellectual Property and Trademarks: The franchise agreement should disclose whether the franchisor holds any trademarks, patents, proprietary methods, or other intellectual property. Details on any restrictions or limitations in using these assets must also be provided. 6. Training and Support: The checklist must include information regarding initial training programs, ongoing support, and any additional resources or assistance provided by the franchisor. The duration, content, and costs associated with such training should be outlined. 7. Advertising and Marketing: It is crucial for the prospective franchisee to understand the franchisor's advertising and marketing requirements. The checklist should provide information on national and local advertising funds, marketing materials, and any mandatory advertising contribution. 8. Renewal, Termination, and Transfer: Franchisees need to know the terms and conditions for renewing the franchise agreement, as well as the process for terminating or transferring the franchise. Any fees or penalties associated with these actions should be disclosed. Types of Alabama Checklists Regarding Matters that must be Disclosed to Prospective Franchisee: 1. Alabama Franchise Disclosure Document (ADD) Checklist: This checklist outlines the specific information required by the FTC's Franchise Disclosure Document under the FTC Franchise and Business Opportunity Rule. 2. Alabama Franchise Agreement Checklist: This checklist focuses on the terms and conditions outlined in the franchise agreement and ensures compliance with the FTC rules. It covers all aspects of the agreement from fees and royalties to territorial rights and termination clauses. 3. Alabama Financial Statements Checklist: Franchisors must disclose their financial statements to potential franchisees. This checklist ensures that the financial statements provided meet the necessary standards and include relevant information such as balance sheets, income statements, and cash flow statements. 4. Alabama Advertising and Marketing Checklist: This checklist specifically addresses the franchisor's advertising and marketing requirements, including details on funding, marketing materials, and any restrictions or guidelines the franchisee must follow. By utilizing these checklists, both franchisors and prospective franchisees in Alabama can better understand their rights, obligations, and the necessary information that should be disclosed during the franchise buying process, thus promoting transparency, fair business practices, and informed decision-making.
