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 District of Columbia Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a crucial document for both franchisors and prospective franchisees in the District of Columbia. This checklist ensures compliance with the Federal Trade Commission (FTC) Franchise and Business Opportunity Rule, which mandates the disclosure of specific information to protect the interests of prospective franchisees. The checklist covers various aspects that franchisors must disclose to potential franchisees in accordance with the FTC Rule. Here are some key matters that are typically included in this checklist: 1. Franchisor's Background and Experience: Franchisors are required to disclose detailed information about their business history, experience, and any previous involvement in bankruptcy or litigation related to their previous franchise operations. 2. Franchise Costs and Fees: This section includes a breakdown of the initial franchise fee, ongoing royalties, and other payments required from the franchisee. It also outlines any financial requirements or obligations, such as minimum net worth or liquid capital requirements. 3. Initial Investment and Financing: Franchisors must disclose the estimated initial investment necessary to start and operate the franchise. This may include costs related to equipment, inventory, location build-out, and other expenses. Information on potential financing options and whether the franchisor offers any assistance in obtaining financing should also be provided. 4. Franchise Territory and Exclusivity: This section clarifies the geographic territory granted to the franchisee, any restrictions on market competition, and whether the franchisor reserves the right to operate or grant other franchises within the same territory. 5. Franchise Training and Support: Prospective franchisees need to know the extent and nature of training programs offered by the franchisor. This may include initial training, ongoing support, marketing assistance, and access to proprietary systems or materials. 6. Franchise System and Operations: This section outlines the details of the franchisor's business system, including the designated suppliers, business procedures, and any required standards or operational guidelines the franchisee must follow. 7. Franchise Financial Statements: Franchisors are obliged to provide audited financial statements of the franchisor's operations, including balance sheets, income statements, and cash flow statements. This enables potential franchisees to assess the financial health and stability of the franchisor. These are some main points covered by the District of Columbia Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule. It is important to note that this checklist may vary slightly from state to state, as individual states may have additional requirements or specific regulations regarding franchising.
