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.
South Carolina Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule: 1. Franchise Fee: The checklist requires disclosure of the exact amount of the franchise fee, including any ongoing royalty or advertising fees. 2. Initial Investment: Franchisors must provide a detailed breakdown of the total initial investment required to establish and operate the franchise. 3. Franchisee Obligations: This includes the franchisee's responsibilities, such as the scope of operation, training, marketing, and any ongoing support provided by the franchisor. 4. Territory: Disclose whether the franchisee will operate within an exclusive territory, and if so, the specified boundaries and any limitations on territorial rights. 5. Trademarks and Intellectual Property: Clarify the franchisee's rights to use the franchisor's trademarks, logos, and copyrighted materials, including any limitations or renewal conditions. 6. Supplier Restrictions: If the franchisor imposes restrictions on suppliers, these must be disclosed, along with any benefits the franchisee may receive from approved suppliers. 7. Renewal and Termination: The checklist requires disclosure of the conditions for renewal or termination of the franchise agreement, including any fees or penalties involved. 8. Financial Performance Representations: If the franchisor provides any information regarding potential financial performance, it must be disclosed. This can include sales figures, profit margins, or other financial projections. 9. Litigation History: Franchisors must disclose any history of litigation involving the franchise or its key personnel, including any ongoing legal matters. 10. Independent Investigation: The checklist reminds franchisees to conduct their own due diligence and seek professional advice before entering into a franchise agreement. It is important to note that South Carolina's checklist regarding matters disclosed to prospective franchisees in accordance with the FTC Franchise and Business Opportunity Rule may vary slightly from the national standard. However, these key points capture the main areas that must be disclosed to potential franchisees in South Carolina under the FTC guidelines.
