Franchise Documents - Offering Circular and Franchise Agreement
Learning about these Documents
Offering Circular and the Franchise Agreement or Contract
You will need to be more familiar with these two important documents when you become interested enough in a franchise opportunity to start gathering information and beginning discussions with a prospective franchisor. By learning more about both of these franchise documents and the details they require, you will be better prepared to investigate potential franchise opportunities.
Disclosure Document (Offering Circular)
This document is also known as the UFOC, or the Uniform Franchise Offering Circular. The UFOC is the extensive disclosure document a franchisor must present to any potential franchisee. This disclosure document summarizes certain provisions of the franchise agreement and other information. You should read this franchise document and all accompanying agreements carefully. In the disclosure document, you will find information about the franchisor, including the obligations of the franchisor and the franchise, fees, start-up costs, and other required information about the franchise system.
In the United States, all franchisees must receive this disclosure document at least 14 calendar-days before you sign a binding agreement with, or make any payment to, the franchisor or an affiliate in connection with the proposed sale.
If an offering circular is not delivered on time or if it contains a false, incomplete, inaccurate, or misleading statement, it may be in violation of federal or state law and the violation should be reported to the Federal Trade Commission, the federal agency that oversees franchises.
Franchise Disclosure documents are not required everywhere around the world.
Examine and compare the disclosure and franchise agreements
Attached to the franchise disclosure document, you will find a copy of the current franchise agreement or contracts and possibly other ancillary agreements issued by the franchisor. Carefully examine these agreements and compare them with the statements that are made in the offering circular. Make sure that the statements coincide and there is nothing missing from the agreement or contract and nothing additional that is not in the offering circular as previously discussed. Show your contract and disclosure document to an advisor, such as a lawyer or an accountant.
A franchise agreement is defined as the written contract between the franchisor and the franchisee and outlines the obligations each has to the other. A franchise agreement will have a pre-determined term, which can later be extended (renewed). A franchise agreement should always be reviewed by a lawyer before it gets signed.
There are four distinct types of franchise agreements – single-unit franchises, multiple single-unit franchises, area-development franchises, and master franchises.
The franchise agreement is more specific about the terms of the relationship than the UFOC. It tells each party what it is supposed to do and what it is not supposed to do and precisely what the franchisee is buying.
Generally, franchisors will not agree to negotiate any terms of their agreement, particularly those terms that are material to them and any substantial changes in the agreement require a change in the offering circular. Many franchisors may be reluctant to make material changes, particularly if they must first obtain approval from a state franchise regulator. Think about the franchisor trying to manage a system with everyone operating under a different deal and why the document is called a Uniform Franchise Offering Circular. Flexibility can be a sign of inconsistency.
Franchising’s strength is its consistency. It’s what the public depends on. It’s also what you the franchisee depends on. You and the public are relying on the system’s consistency.
What is a Franchise
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