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.
Ohio Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule: In Ohio, there are certain matters that must be disclosed to potential franchisees in adherence with the FTC Franchise and Business Opportunity Rule. These disclosures aim to provide transparency and protect the interests of prospective franchisees. Here is a detailed description of the checklist and its essential elements: 1. Initial Franchise Fee: The franchisor must disclose the amount of any initial franchise fee to be paid by the franchisee. This fee covers the rights to operate under the franchisor's brand and receive initial support and training. 2. Royalty and Other Fees: The checklist requires the franchisor to disclose the ongoing royalty fees or any other recurring fees that the franchisee will be responsible for paying. This information helps the franchisee understand their financial obligations throughout the franchise relationship. 3. Estimated Initial Investment: A detailed breakdown of the estimated initial investment required to establish a franchise must be disclosed, including costs for equipment, inventory, leasehold improvements, and other expenses. This provides prospective franchisees with a realistic understanding of the financial commitment needed to start the business. 4. Franchisee's Obligations: The franchisor must disclose the franchisee's principal obligations regarding operation, management, and maintenance of the business. This may include marketing requirements, operational standards, or any exclusive purchases the franchisee must make. 5. Territory Restrictions: The checklist mandates disclosure of any territorial limitations imposed on the franchisee. This could include restrictions on the number or location of competing franchise units nearby. 6. Franchisor's Training and Assistance: The franchisor is required to outline the training and support programs available to the franchisee. This includes initial training, ongoing support, and any marketing or advertising assistance provided. 7. Franchisor's Financial Statements: The franchisor must provide prospective franchisees with audited financial statements to evaluate the company's financial health and stability. This ensures that franchisees can make informed decisions about the long-term viability of the franchisor. 8. Franchisee's Obligation to Purchase or Lease Supplies: If the franchisee is obligated to purchase goods or services exclusively from the franchisor or a specified supplier, this must be disclosed. It helps the franchisee assess the potential impact on costs and supplier arrangements. 9. Franchisee's Intellectual Property: The franchisor must disclose whether the franchisee will have access to proprietary trademarks, copyrights, trade secrets, or patents. This ensures clarity on the level of intellectual property protection and rights the franchisee will receive. 10. Franchisee's Renewal and Termination Rights: The checklist requires the disclosure of the terms and conditions for franchise renewal and termination. This includes any right of first refusal, transferability conditions, or termination penalties that may apply. 11. Litigation History: The franchisor must disclose any past or ongoing litigation involving the franchisor or its key personnel. This gives franchisees insight into potential legal risks associated with the franchise system. These are some crucial elements covered in the Ohio Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule. Adhering to these guidelines promotes transparency, protects potential franchisees, and fosters a fair business environment.
