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: North Dakota Checklist: Disclosures for Prospective Franchisees under FTC Franchise and Business Opportunity Rule Keywords: North Dakota, checklist, franchisee, FTC, Franchise and Business Opportunity Rule, disclosures, prospective, matters Introduction: Under the FTC Franchise and Business Opportunity Rule, prospective franchisees in North Dakota are entitled to receive specific disclosures from franchisors. This checklist outlines the matters that must be disclosed to prospective franchisees in accordance with the rule. It ensures that individuals considering franchise ownership in North Dakota are well-informed and have access to crucial information before making any binding commitments. Here are the key matters that must be disclosed: 1. Franchisor’s Background: Provide detailed information about the franchisor's history, key executives, business experience, and any litigation or bankruptcy history that may impact the franchisee's decision. 2. Initial Franchise Fees: Disclose all fees associated with initiating the franchise, including the initial franchise fee, training fees, software charges, and any other costs the franchisee should expect to incur before commencing business operations. 3. Estimated Start-Up Costs: Itemize all potential costs for opening and operating the franchise, such as real estate, equipment, inventory, licenses, permits, marketing, initial marketing materials, and working capital requirements. The estimated costs should be presented as accurately as possible, based on historical data or franchise experience. 4. Ongoing Royalties and Fees: Clearly outline the percentage of royalties or ongoing fees paid to the franchisor, frequency of payment, and any additional fees such as advertising fees or technology charges. Franchisees should have a comprehensive understanding of the ongoing financial obligations associated with the franchise agreement. 5. Territory and Exclusivity: Specify the geographic territory granted to the franchisee, any limitations or exclusivity provisions within that territory, and whether the franchisor has the right to establish additional franchise locations nearby. This information assists prospective franchisees in assessing the potential market opportunities and level of competition. 6. Training and Support: Detail the nature and duration of the initial training program provided by the franchisor. Additionally, disclose the ongoing support and resources available to franchisees, including marketing assistance, operational guidance, and access to proprietary technology or systems. 7. Renewal and Termination: Outline the terms and conditions surrounding franchise agreement renewal, including any fees associated with renewal. Similarly, describe the circumstances that may lead to termination or non-renewal of the franchise, protecting prospective franchisees' interests. 8. Financial Performance Representations: If the franchisor makes earnings claims or provides financial performance representations, those must be disclosed in a clear and transparent manner. This ensures that prospective franchisees have realistic expectations about the potential economic results they may achieve. 9. Existing Franchisees and Contact Information: Provide a list of current and former franchisees within North Dakota or the surrounding area, allowing prospective franchisees to reach out and inquire about their experiences with the franchisor. 10. Franchise Agreement: Include a copy of the franchise agreement, which should be reviewed thoroughly by a legal professional specializing in franchise law to fully understand the contractual obligations, rights, and limitations. Note: Different states may have additional requirements for franchise disclosure, so it is advisable to consult state-specific regulations, such as North Dakota's Franchise Investment Law, which may introduce further disclosures specific to the state. Conclusion: Franchisors must adhere to the FTC Franchise and Business Opportunity Rule when providing prospectus franchisees in North Dakota with the required disclosures. This checklist, encompassing key matters of disclosure, aims to ensure that prospective franchisees have access to all pertinent information necessary for making an informed decision about franchise ownership in North Dakota within the bounds of federal regulations.
