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.
Maryland Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule covers the essential information that franchisors need to disclose to potential franchisees in Maryland, in compliance with the Federal Trade Commission (FTC) Franchise and Business Opportunity Rule. This checklist aims to ensure transparency and protect the interests of prospective franchisees who are considering investing in a franchised business. Several key aspects that must be disclosed according to the FTC Rule and specific to Maryland include: 1. Background Information: Franchisors must provide a detailed description of their business experience, including any past bankruptcies, litigation history, or criminal convictions of the franchisor, its key executives, and management personnel. 2. Franchise Fees and Other Costs: The franchisor must disclose all initial fees, such as franchise fees, royalties, advertising fees, and any ongoing costs that the franchisee will bear throughout the term of the franchise agreement. 3. Franchise Agreement Terms: The checklist must include a summary of the primary terms and conditions outlined in the franchise agreement, including the duration of the agreement, renewal rights, termination conditions, and any dispute resolution procedures. 4. Past and Present Franchisees: Franchisors must provide a list of both current and former franchisees, along with contact information, to allow prospective franchisees to conduct due diligence and contact them for feedback and insights on their experiences with the franchisor. 5. Financial Performance Representations: If a franchisor makes any claims or representations regarding the potential financial performance of the franchise, they must disclose supporting data, including earnings claims, profit margins, or average revenues, to substantiate these statements. 6. Territory Rights and Restrictions: The franchisor must clarify whether the franchisee will be granted exclusive or non-exclusive territorial rights, any restrictions on sales or advertising activities within the territory, and whether the franchisor reserves the right to operate or license additional locations within the same territory. 7. Training and Support: Maryland checklist should detail the initial and ongoing training programs provided by the franchisor, including the length, content, and costs associated with such training. Additionally, franchisors must disclose the nature and extent of ongoing support provided to franchisees, such as marketing, advertising, and technical assistance. It is important to note that the Maryland checklist described above is specifically tailored to comply with the FTC Franchise and Business Opportunity Rule. Keep in mind that additional state-specific requirements may exist, depending on the state's laws and regulations governing franchise operations. Franchisors must ensure full adherence to both federal and state guidelines when providing disclosure information to prospective franchisees in Maryland.
