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.
Delaware Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule Under the Federal Trade Commission (FTC) Franchise and Business Opportunity Rule, franchisors are required to disclose certain information to prospective franchisees before they sign any agreements or make any payments. This ensures transparency and provides potential franchisees with essential information to make informed business decisions. The following is a detailed description of the Delaware Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with the FTC Franchise and Business Opportunity Rule. 1. Franchisor Information: The franchisor must provide their legal name, address, and contact information, including phone number and email address. 2. Litigation History: Franchisors must disclose any past or ongoing litigation involving the franchisor, its officers, or any affiliates. This includes details about lawsuits, judgments, or settlements related to the franchise operation. 3. Bankruptcy History: Any history of bankruptcy by the franchisor or its key personnel must be disclosed. This includes both personal and corporate bankruptcy filings. 4. Franchise Costs: Prospective franchisees must be provided with a clear breakdown of all costs associated with purchasing and operating the franchise. This includes the initial franchise fee, royalties, advertising fees, and any other required payments. 5. Franchise Territory: Franchisors must disclose whether they grant an exclusive or non-exclusive territory to their franchisees. If the territory is non-exclusive, any limitations or competition from other franchisees must be clarified. 6. Initial and Ongoing Training: Details about the initial training program provided by the franchisor, its duration, and location must be disclosed. Additionally, information about ongoing training and support programs should be included. 7. Advertising and Marketing: Franchisors must disclose any required advertising contributions, including national or local advertising fees. They should also highlight whether the franchisee is obligated to participate in joint advertising campaigns. 8. Intellectual Property: Any trademarks, trade names, copyrights, patents, or proprietary business methods used by the franchisor must be disclosed. Information about ongoing fees for the use of these assets should also be provided. 9. Renewal, Termination, and Transfer: Franchisors must outline any terms and conditions related to franchise renewal, termination, and transfer of ownership. This includes information about the grounds for termination and any associated fees. 10. Financial Statements: Franchisors must provide audited or reviewed financial statements, disclosing their financial health and stability. This enables prospective franchisees to assess the franchisor's financial capacity to support the franchise system. 11. Franchisee's Obligations: All obligations and responsibilities of the franchisee must be clearly disclosed. This includes details about site selection, lease or ownership of premises, employee hiring and training, and ongoing operational requirements. 12. References: Franchisors should provide a list of existing franchisees who can be contacted as references. This allows prospective franchisees to gather firsthand information about the franchisor's support, system, and profitability. It is important to note that the exact content and format of the Delaware Checklist may vary slightly, as the FTC Franchise and Business Opportunity Rule sets minimum requirements, which states may supplement with additional regulations. Prospective franchisees should consult the specific Delaware Franchise Disclosure Document and checklist to ensure compliance with all state-specific requirements.
