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.
Title: Complying with the FTC Franchise and Business Opportunity Rule: Kansas Checklist for Prospective Franchisees Introduction: In accordance with the FTC Franchise and Business Opportunity Rule, prospective franchisees in Kansas must be provided with certain disclosures. This article will outline the essential matters that franchisors must disclose to prospective franchisees in Kansas, which will help them make informed decisions regarding their franchise investment. We will delve into the key aspects that should be included in the Kansas checklist. 1. Franchisor Background: Franchisors must disclose detailed information about their background, including business experience, litigation history, and bankruptcy filings. This ensures prospective franchisees have a clear understanding of the franchisor's credibility and stability. 2. Initial and Continuing Fees: The franchise agreement should clearly state all fees involved in buying and operating the franchise, such as the initial franchise fee, ongoing royalty fees, marketing fees, technology fees, and any other applicable charges. Full transparency regarding the financial obligations helps prospective franchisees assess their investment requirements. 3. Franchisor's Financial Condition: It is crucial for franchisors to disclose their audited financial statements, providing a comprehensive overview of their financial stability. These statements should reflect any red flags, such as insolvency, limited working capital, or cash flow issues, if applicable. 4. Franchisee's Initial Investment and Expected Earnings: Franchisors must provide an estimate of the total initial investment required to start and operate the franchise, including equipment, inventory, build-out costs, and other relevant expenses. Additionally, they should disclose any data on the expected earnings and financial performance of the franchise. 5. Franchisee Training and Assistance: Franchisors should detail the training programs and ongoing support they provide to franchisees. This includes information about initial training, field support, marketing assistance, and any other resources available to help franchisees succeed. 6. Territory and Restrictions: Franchisors must disclose whether they grant exclusive territories to franchisees and specify any limitations or restrictions on the territory. This information allows prospective franchisees to evaluate their market potential and understand potential competition from other franchisees. 7. Intellectual Property Rights: Franchisors should outline the franchisee's rights and limitations concerning the use of trademarks, copyrights, patents, and other intellectual property. Understanding the scope of these rights is crucial for franchisees to protect their investment and operate under the franchisor's brand. 8. Renewal and Termination: The checklist should include information on franchise agreement renewal terms, termination provisions, and any associated costs or conditions. Prospective franchisees need to be fully aware of the potential circumstances that may lead to termination and the process for renewal. Different Types of Kansas Checklists: To address specific franchise categories or industries, there may be variations in the disclosure requirements from the standard checklist mentioned above. Common variations include: — Kansas Checklist for Food Service Franchises — Kansas Checklist for Retail Franchises — Kansas Checklist for Service-Based Franchises Conclusion: The Kansas Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule serves as an essential tool to protect the interests of prospective franchisees. Franchisors must provide complete and transparent information to aid potential franchisees in making informed investment decisions. Compliance with these disclosure requirements ensures a fair and regulated franchising environment in Kansas.
