Expert Advice When You Need It Most

The New FTC Franchise Rule - Franchise Disclosure Documents (FDD)

Written by: Kevin Brendan Murphy

Reputation Level 13

Posted about 3 years ago. 4 helpful votes, 0 comments

Save

Share with:

FDD Format versus UFOC Format

In summary, what the Franchise Disclosure Document or new FDD format does is take the prior Uniform Franchise Offering Circular (UFOC) disclosures, modify them in certain respects and rename the document. It’s now called a Franchise Disclosure Document or FDD.

UFOC vs. FDD Revisions

There are still 23 Items and although the revisions are not that substantive, they are numerous. One major transactional change relates to the time a prospective franchisee must have the document in their hands before contacts can be signed or any money paid. The former rule said the UFOC had to be in hand for at least ten business days AND a completed, separate franchise agreement had to be delivered to the prospective franchisee for at least five business days. Under the new rule, there’s a fourteen calendar day minimum review period that simplifies the complexity of completing a franchise transaction. There's another seven calendar day period that kicks in if the franchise company makes unilateral and material changes to the franchise agreement or other agreement attached to the FDD.

Phase In Period for new FDD Format

The new FDD format was permissive starting July 1, 2007. It became mandatory starting July 1, 2008. So franchise companies cannot make any offers or sales using or distributing the old UFOC. The new FDD is the required format in all states starting July 1, 2008.

Time to Convert old UFOC to new FDD Format

A franchise attorney familiar with the new FDD format should be able to convert the old UFOC to the new FDD format within ten to twenty hours, plus or minus.

Electronic Delivery of FDD

Stepping into the 21st century, the new FTC Rule permits delivery of the Franchise Disclosure Document by electronic means, such as by email or downloading from a website. The cover page of the FDD now contains the franchise company's website and email address, if the company has these. Finally, the new Rule allows a prospective franchise buyer to “sign” a FDD receipt electronically. There are some electronic prohibitions: Disclosures must not include electronic features such as pop-up windows, audio, video, and links to external documents. However, features that enable a prospective franchise buyer to review the FDD efficiently are allowed - things like scroll bars, search features, and internal links (for example, links between the Table of Contents and the specific FDD items).