Wednesday, May 09, 2007

Proposal Allows State Registration of Franchise Disclosures Prepared Under New FTC Rule

A proposal to allow franchisors to register franchise disclosure documents prepared pursuant to the new FTC franchise disclosure rule in all states requiring registration was released for public comment by the North American Securities Administrators Association (NASAA) on May 9.

Currently, the 13 states with franchise registration laws require franchisors to prepare disclosure documents pursuant to the Uniform Franchise Offering Circular (UFOC) Guidelines, a format issued by NASAA.

However, the new FTC franchise disclosure rule, issued January 23, 2007, adopted disclosure requirements that closely track the UFOC Guidelines. The new FTC franchise rule “omits or streamlines UFOC Guideline disclosure requirements, such as broker disclosures, cover page risk factors, and detailed computer requirements” and incorporate new disclosure requirements not found in then UFOC Guides, according to NASAA.

Successor to UFOC Guidelines

In light of the similarities between the new FTC rule and the UFOC Guidelines and the “lengthy and comprehensive regulatory review” that preceded the adoption of the rule, NASAA intends to adopt the rule as a successor to the UFOC Guidelines, with minimal additional requirements, the most significant being a “state risk factor” cover page.

If adopted, the proposal would allow franchisors to continue to use the UFOC format until July 1, 2008 or until NASAA adopts a replacement for the UFOC Guidelines, NASAA announced. The FTC rule comes into effect on July 1, 2007, but allows the use of the 1979 rule through July 1, 2008.

Public Comments

The public comment period on the NASAA proposal will run for 14 days from the announcement. Written comments should be sent to Dale Cantone, Maryland franchise administrator and Chair of the NASAA Franchise and Business Opportunity Project Group, with copies forwarded to each member of the project group and NASAA Legal Department.

The announcement, text of the proposed instructions for filing using the FTC franchise rule, and a list of those who should be sent comments appear on the NASAA web site.

Extensive materials on the new FTC franchise disclosure rule, including full text and expert commentary, appear in the CCH Business Franchise Guide.

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