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.
In Pennsylvania, when it comes to franchising, it is essential for franchisors to follow the guidelines set by the Federal Trade Commission (FTC) Franchise and Business Opportunity Rule. This rule mandates that certain information be disclosed to prospective franchisees. The Pennsylvania Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule ensures compliance with these requirements. Let's explore the key aspects of this checklist and its different types if applicable: 1. Identification and Background: Franchisors must provide their full legal name, any variations of the name they operate under, their principal business address, and any affiliates involved in the franchise opportunity. Additionally, they need to disclose the business experience of their key personnel, including executives and directors. 2. Franchise Costs: This section covers all fees and expenses associated with the franchise. It includes the initial franchise fee, ongoing royalties, advertising fees, and any other financial obligations the franchisee must fulfill. The checklist should provide a clear breakdown of these costs. 3. Initial Investment: Prospective franchisees need to know the estimated initial investment required to start the franchise. This comprises the expenses related to opening a new location or acquiring an existing one, such as real estate, leasehold improvements, equipment, inventory, and any additional capital requirements. 4. Restrictions and Obligations: Franchisors must outline any restrictions on the franchisee's business operations, including limitations on the products or services they can offer, territorial rights, and exclusive or non-exclusive territories. Moreover, any ongoing obligations the franchisee must meet, such as mandatory training or participation in marketing programs, should be transparently disclosed. 5. Financing Arrangements: If the franchisor offers any financing options to potential franchisees, the checklist should outline the terms and conditions of such arrangements. This includes information on interest rates, collateral requirements, and any additional fees associated with the financing agreement. 6. Franchisee's Obligations: This section explains the responsibilities and expectations placed on franchisees, such as maintaining certain quality standards, meeting performance expectations, and adhering to operating procedures provided by the franchisor. 7. Territory: If the franchise opportunity includes territorial rights, the checklist should specify the size, scope, and exclusivity of the assigned territory. Franchisees need to have a clear understanding of the geographical boundaries within which they can operate their business. 8. Intellectual Property: Franchisors must disclose the use of trademarks, patents, copyrights, and proprietary systems of the franchise. The checklist should highlight any limitations or restrictions on the franchisee's use of intellectual property and the terms of licensing. Different Types of Pennsylvania Checklists Regarding Matters that must be Disclosed: While there may not be distinct types of Pennsylvania checklists, the content mentioned above covers the essential elements that any comprehensive checklist regarding matters disclosed to prospective franchisees in accordance with the FTC Franchise and Business Opportunity Rule should include. Nevertheless, it is vital for prospective franchisees to consult legal professionals familiar with Pennsylvania's specific franchise laws to ensure compliance and protection of their rights.
