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In FL-is it necessary to have audited financial statements prepared and disclosed within the UFOC in order to sell a franchise?

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Attorney answers 7


As a franchise attorney , this is a bit out of my area of expertise - helping companies franchise a business concept and advising individuals, as a franchise expert, on making franchise investments. However, I can say the following.

If your company meets the parameters of only having to file an unaudited balance sheet, which is usually the case for start-up franchise companies, that's all you'd need.

And the disclosure document is now called an FDD.

Your best bet is to consult with a franchise attorney directly. You can do a search here on AVVO and find them. Many will talk to you at no charge for an initial consultation.

Kevin B. Murphy, B.S., M.B.A., J.D.
Franchise Attorney & Franchise Expert
Director of Operations - Mr. Franchise


Irrespective of the registration state in which a FDD is filed, under the Federal Franchise Rule all franchisors must incorporate "audited" financial statements. However, if you are a start-up franchisor and meet certain criteria you may be provided with a limited "phase-in" period where you may initially file without audited statements, i.e. an unaudited opening balance sheet. However this phase-in applies only to your first fiscal year and provided that you meet other criteria.
To give a more definitive answer additional information the history of your company is required, i.e.:

Are you in your first fiscal year?
Is your company new to franchising?
Has your company produced audited financial statements in the past?

For additional information about the inclusion of audited financial statements in a FDD, I recommend the following article

- Charles N. Internicola


The answer depends on whether the franchisor is a "start-up franchise system" within the meaning of the Federal Trade Commission's Franchise Rule. If the franchisor meets the definition of a "start-up franchise system," then it only needs to have an unaudited opening balance sheet included in its Franchise Disclosure Document during the franchisor's first partial or full fiscal year selling franchises.

You should consult with an experienced franchise attorney to help you determine whether the franchisor meets the definition of a "start-up franchise system" under the FTC Franchise Rule.


If the franchisor is a new franchisor (start-up) the federal law only requires that the franchisor provide an unaudited opening balance sheet in the FDD (the replacement of the UFOC). FL does not have any specific requirement that is any different.

If you are looking to franchise your business or you are an individual looking to invest in a franchise, you should speak with an experienced franchise attorney. If you have further questions, I would be happy to speak with you. Please feel free to call me at 215-525-1165 x101. Good luck to you.

This response does not create an attorney-client relationship and is not intended to provide legal advice for your specific situation.


Dear Florida, as my colleagues state, your Franchise Disclosure Document must comply with the FTC rule including financial statements requirement, which I have quoted below for your reference. Also, prior to offering a franchise in FL, you must also file A Notice of Exemption pursuant to Section 559.802 Florida Statutes (the Sale of Business Opportunities Act) and pay a fee of $100. You must file this annually.

Item 21 : Financial Statements . (1) Include the following financial statements prepared according to United States generally accepted accounting principles, as revised by any future United States government mandated accounting principles, or as permitted by the Securities and Exchange Commission. Except as provided in paragraph (u)(2) of this section, these financial statements must be audited by an independent certified public accountant using generally accepted United States auditing standards. Present the required financial statements in a tabular form that compares at least two fiscal years.

(i) The franchisor's balance sheet for the previous two fiscal year-ends before the disclosure document issuance date.

(ii) Statements of operations, stockholders equity, and cash flows for each of the franchisor's previous three fiscal years.

(iii) Instead of the financial disclosures required by paragraphs (u)(1)(i) and (ii) of this section, the franchisor may include financial statements of any of its affiliates if the affiliate's financial statements satisfy paragraphs (u)(1)(i) and (ii) of this section and the affiliate absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement. The affiliate's guarantee must cover all of the franchisor's obligations to the franchisee, but need not extend to third parties. If this alternative is used, attach a copy of the guarantee to the disclosure document.

(iv) When a franchisor owns a direct or beneficial controlling financial interest in a subsidiary, its financial statements should reflect the financial condition of the franchisor and its subsidiary.

(v) Include separate financial statements for the franchisor and any subfranchisor, as well as for any parent that commits to perform post-sale obligations for the franchisor or guarantees the franchisor's obligations. Attach a copy of any guarantee to the disclosure document.

(2) A start-up franchise system that does not yet have audited financial statements may phase-in the use of audited financial statements by providing, at a minimum, the following statements at the indicated times:
(i) The franchisor' first partial or full fiscal year selling franchises. An unaudited opening balance sheet.
(ii) The franchisor' second fiscal year selling franchises. Audited balance sheet opinion as of the end of the first partial or full fiscal year selling franchises.
(iii) The franchisor' third and subsequent fiscal years selling franchises. All required financial statements for the previous fiscal year, plus any previously disclosed audited statements that still must be disclosed according to paragraphs (u)(1)(i) and (ii) of this section.

(iv) Start-up franchisors may phase-in the disclosure of audited financial statements, provided the franchisor:

(A) Prepares audited financial statements as soon as practicable.

(B) Prepares unaudited statements in a format that conforms as closely as possible to audited statements.

(C) Includes one or more years of unaudited financial statements or clearly and conspicuously discloses in this section that the franchisor has not been in business for three years or more, and cannot include all financial statements required in paragraphs (u)(1)(i) and (ii) of this section.

The foregoing is for informational purposes only and may not be relied on as attorney-client advice.


My colleagues have given you the rules for financial statements. The exemption notice under the Business Opportunity Act is optional, not mandatory. However, due to the simplicity and minimal cost, it would be a huge mistake not to file it. If you do not file the notice the Act may still not apply if you do not meet any of the definitions. The safer course is to file.


Most of the answers you have received are getting you on the right track. I am writing just to summarize and put the advice in perspective, as a Florida franchise attorney.

Florida is not one of the dozen-and-a-half states that heavily regulates franchises, i.e., it defers for the most part to the uniform guidelines offered by the Federal Trade Commission (FTC). Those guidelines provide for what was formerly called the Uniform Franchise Offering Circular (UFOC), now known as the Franchise Disclosure Document (FDD). By using the FDD, you open the door to offering franchises in Florida without further work (other than the annual filing of a simple, one-page form and paying Florida's annual fee --- the government wants its revenues). At the same time, you have opened the door to offering franchises, using the same offering document, in a majority of other states.

The FTC's guidelines for the FDD include the requirement of providing financial statements. Generally, yes, they must be audited. However, if the franchisor business entity is a new company, you do have a 3-year phase-in period during which time you transition from unaudited financials at the beginning to audited financials. And it usually makes sense, when starting a new franchise, to do so with a new entity.

Based on your questions (including the use of the term, UFOC, which was replaced 5 years ago now), sounds like you need to bite the bullet and get some legal assistance. Saving money on legal fees now can cost you a whole lot more in legal troubles later.

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