If you are considering buying a franchise, there are numerous laws and rules you'll need to know. Follow along as FindLaw helps guide you through some of the more prominent issues that may arise.
Where Can I Get a Company's Pre-Sale Disclosures?
There are 15 states (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin) that keep franchise offering circulars on file, and 25 states that require business opportunity disclosure filings (Alaska, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia and Washington).
Most states aren't able to provide copies of these disclosures, but usually will let you visit their offices and review or copy the documents by appointment. A few private companies may also make available franchise disclosure documents filed in one or more states for a fee. See the Federal Trade Comission's (FTC) website for more detailed information.
How Can I Find Out About Complaints Against a Company?
No federal or state agency or private organization can tell you whether or not a company is legitimate or operates in good faith. For example, FTC can only report on whether it has received consumer complaints about a company. Operators of fly-by-night franchise and business opportunity scams know this, and may change the name and location of their company every six to twelve months so they never have a record of consumer complaints.
There is no substitute for checking the track record of a franchisor or business opportunity seller by talking to at least ten prior purchasers in person. That is why the Franchise Rule requires companies to include in their disclosures a list of the names, addresses and telephone numbers of at least the ten prior purchasers who are geographically closest to you.
If you want information about consumer complaints, any request to the FTC must be in writing. The Commission needs to check whether complaints have been received not only in Washington, but also in its 10 regional offices. You can address your request to:
Freedom of Information Act Request
Consumer Response Center ("CRC")
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Telephone number: (202) 326-2222
Identify your letter as a "FOIA Request" and include
In most cases, there are no fees for searching, document review, or copying for members of the general public. It is a good idea, however, to state the maximum you are willing to pay, so the FTC can contact you in the unusual event that any applicable fees for these services will cost more than the limit you set.
How Can I File a Complaint Against a Company?
The FTC lacks the resources to investigate every individual complaint it receives. For this reason, you should consider talking with a private attorney about the feasibility of bringing a private lawsuit, or taking other individual or group action that may help resolve the problem.
Consumer complaints give the FTC important information, helping to identify companies and practices that affect a broad segment of the public, and are useful for law enforcement purposes. All complaints to the FTC should be in writing, but no special form is required. A short one- or two-page letter is fine. Just tell the Commission what you think was misleading or deceptive in the company's promotional materials, disclosure statement or offering circular. If you want your letter kept confidential, please print the words, "Privileged and Confidential," on the top of each page.
Be sure your letter includes your name, address, and a daytime telephone number where the FTC can reach you. It will help if you can provide the names and telephone numbers of other purchasers who have experienced the same problems, and if you can send copies of any written claims in promotional materials or elsewhere that you believe are false. Be sure to send copies, not originals, of any documents you think the Commission should have.
Please address your complaint to:
Franchise & Business Opportunity Complaint
Federal Trade Commission - Rm. 238
Washington, D.C. 20580.
Where Can I Get the Forms for Drafting an Offering Circular?
The Franchise Rule provides its own disclosure format, which is published in the Code of Federal Regulations, Volume 16, Part 436 (16 CFR § 436). The Commission also permits the use of an alternative disclosure format called the Uniform Franchise Offering Circular, or "UFOC," issued by the North American Securities Administrators' Association, for Franchise Rule compliance. A copy of the Guidelines for preparing UFOC disclosures, which franchisors wishing to use the UFOC must follow to comply with the Franchise Rule, can be obtained from:
North American Securities Administrators' Association
10 G St NE, Ste 710
Washington, DC 20002
The current Guidelines are also reprinted in the Business Franchise Guide published by Commerce Clearing House, Inc., which is available in many law libraries.
Using an Attorney to Help with your Franchise and Business Opportunity Issues
The Franchise Rule and accompanying laws are complicated. Simplify your life by hiring an experienced business law attorney to instruct you on the rules set up by both federal and state governments. If you are thinking of bringing a lawsuit, it's imperative that you have legal counsel by your side.
To learn more, see FindLaw's Small Business section.