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: New Jersey Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule Introduction: The New Jersey Checklist Regarding Matters that must be Disclosed to Prospective Franchisee acts as a comprehensive guide for franchisors in New Jersey to ensure compliance with the Federal Trade Commission (FTC) Franchise and Business Opportunity Rule. In order to protect prospective franchisees and promote transparency in franchise agreements, this checklist outlines important information that franchisors must disclose. Let's explore the various aspects covered by this checklist. 1. Franchisor Details: Franchisors are required to provide their legal name, business type, contact information, and any parent companies or affiliates associated with the franchise. This ensures prospective franchisees have accurate information about the franchisor's identity and corporate structure. 2. Franchise Fees and Payments: This section covers all financial obligations that a prospective franchisee must be aware of, including initial franchise fees, ongoing royalties, advertising fees, and any other required payments. It outlines the payment schedule, refund policies (if applicable), and any existing restrictions on financing options. 3. Initial Investment: Franchisors must disclose the estimated initial investment required to establish and operate the franchise. This includes costs related to equipment, leasehold improvements, inventory, and any other necessary elements involved in starting the franchise. The checklist emphasizes the importance of providing a clear breakdown of these costs. 4. Training and Support: Prospective franchisees need to know what kind of training and support they can expect from the franchisor. The checklist specifies that franchisors must disclose details about initial and ongoing training programs, operational assistance, marketing support, and assistance with site selection or lease negotiation. 5. Territory Rights and Restrictions: Franchisees should be informed of their territorial rights and any geographical restrictions that may limit their market area. The checklist highlights the need for clear guidelines regarding exclusivity, competition, and potential encroachment. 6. Trademarks and Intellectual Property: Franchisors should provide information about registered trademarks, trade names, logos, and other proprietary assets involved in the franchise. This section emphasizes the need for transparency regarding any limitations or restrictions on the franchisee's use of these assets. 7. Contractual Obligations and Renewal Terms: The checklist emphasizes the importance of including all contractual obligations in the franchise agreement. Franchisors must provide details on the duration of the franchise agreement, renewal policy, termination conditions, and any potential transfer or assignment restrictions. 8. Financial Performance Representations: While not mandatory, if a franchisor chooses to disclose financial performance representations (FRS), they must ensure they have a reasonable basis for such claims. If FRS are provided, the checklist emphasizes the need for clear and substantiated information. 9. Litigation History: Franchisors must disclose any past or ongoing litigation involving the franchise system, its key personnel, or any affiliate companies. This includes lawsuits related to the franchise agreement, alleged wrongful behavior, or violations of franchise laws or regulations. 10. Additional Information: Any other material facts or information that may have a substantial impact on the franchisee's decision-making process should be disclosed. This section encourages franchisors to provide comprehensive and truthful information to protect the interests of both parties. Conclusion: The New Jersey Checklist Regarding Matters that must be Disclosed to Prospective Franchisee is designed to ensure transparency and protect prospective franchisees from potential risks or fraudulent practices. By providing detailed information in accordance with the FTC Franchise and Business Opportunity Rule, franchisors can promote trust and foster successful, legally compliant franchise agreements.
