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 Colorado Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with the FTC Franchise and Business Opportunity Rule is a crucial document outlining the necessary disclosable information for franchisors operating within Colorado. This checklist ensures transparency and protection for prospective franchisees considering investing in a franchise opportunity. It helps franchisors comply with the regulations set forth by the Federal Trade Commission (FTC) and the Business Opportunity Rule (FOR). Here are some of the key components covered in the Colorado Checklist: 1. Basic Information: Franchisors must disclose their legal name, principal business address, contact details, and any affiliated entities involved in the franchise operation. 2. Franchise Fee: This section explains the initial franchise fee required to be paid by the franchisee and any ongoing fees or payments, including royalties or advertising contributions. 3. Franchise Territory: It outlines the scope and exclusivity of the franchise territory, including any restrictions on competition within the specified area. 4. Intellectual Property: Franchisors need to disclose information regarding the trademarks, trade names, service marks, logos, and copyrights associated with the franchise. 5. Initial Investment: This section provides a breakdown of the estimated initial investment required to establish and operate the franchise, including equipment, supplies, and other start-up costs. 6. Financing Options: Franchisors must clarify if they offer any financing assistance directly or indirectly, including any terms, conditions, and obligations relating to such financing. 7. Training and Support: It discloses the extent and nature of any training programs or ongoing support provided by the franchisor before and during the franchise operation. 8. Advertising and Marketing: Franchisors must outline the requirements, restrictions, and fees associated with local and national advertising and marketing efforts. 9. Obligations and Restrictions: This section highlights the obligations, limitations, and restrictions placed on the franchisee, such as operational guidelines, hours of operation, and procurement requirements. 10. Renewal, Termination, and Transfer: Franchisees must be informed about the terms of renewing the franchise agreement, conditions for termination, and any transfer restrictions. 11. Financial Performance Representation: If the franchisor provides any information regarding potential earnings, sales, or profits, it must be disclosed in this section. 12. Franchisee Contacts: Franchisors may need to provide a list of current and former franchisees, allowing prospective franchisees to contact them for more information. It's important to note that the Colorado Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is specific to Colorado. Other states may have additional or different requirements, so it's essential to consult state-specific guidelines when offering franchises in other locations.
