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.
Puerto Rico Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a set of guidelines and requirements that franchisors in Puerto Rico must adhere to when disclosing information to potential franchisees. These disclosures help prospective franchisees gather essential details and make informed decisions before entering into a franchise agreement. Here are some key aspects covered by the Puerto Rico Checklist: 1. Franchise Disclosure Document (ADD): The ADD is a comprehensive document that provides detailed information about the franchisor, their business model, and the terms of the franchise agreement. It includes data required by the FTC Franchise and Business Opportunity Rule. 2. Franchisor Background: The checklist ensures that franchisors must disclose their backgrounds, including any history of litigation, bankruptcy, or regulatory action. This helps potential franchisees assess the credibility and reliability of the franchisor. 3. Initial Investment Requirements: Franchisors must disclose the initial investment required for starting and operating a franchise. This includes franchise fees, equipment costs, real estate expenses, inventory requirements, and any other significant expenditures. 4. Ongoing Fees and Royalties: Franchisors should disclose all ongoing fees, such as royalty payments, advertising contributions, and other recurring expenses that franchisees are required to pay during the term of the franchise agreement. 5. Territory Restrictions: Franchisees need to be aware of any territory restrictions that may limit their exclusive rights or restrict the franchisor's ability to sell additional franchises in their designated area. 6. Training and Support: Franchisors must disclose the training programs and ongoing support available to franchisees. This includes details regarding initial training, ongoing operational assistance, marketing support, and any limitations on assistance provided. 7. Renewal and Termination: The checklist should outline the terms and conditions for franchise agreement renewal, termination, and transferability. Franchisees need to know their rights and obligations during and after the initial term of the agreement. 8. Financial Performance Representations: If the franchisor provides any financial performance representations, such as projected sales or earnings, they must be disclosed to potential franchisees. These representations should be supported by written documentation and factual data. 9. Franchisee Obligations and Restrictions: Franchisors should disclose the obligations and restrictions imposed on franchisees, such as purchasing requirements, reporting obligations, non-compete clauses, and operational standards. 10. Disclosure of Litigation and Bankruptcy: Franchisors must disclose any past or ongoing litigation, bankruptcy filings, or financial aspects that may affect the franchisor's ability to fulfill their obligations or financially support the franchise system. These are some critical areas covered by Puerto Rico Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule. It ensures transparency and gives potential franchisees the necessary information to evaluate the franchise opportunity thoroughly.
