NASAA Seeks Comment on Proposed Franchise Disclosure/Registration Guidelines

This posting was written by Peter Reap, Editor of CCH Business Franchise Guide.

The North American Securities Administrators Association (NASAA) released for internal and public comment proposed updated franchise registration and disclosure guidelines on February 26, 2008.

NASAA’s proposed 2008 Franchise Registration and Disclosure Guidelines would allow states that register franchise offerings to accept, as of July 1, 2008, franchise disclosure documents prepared under the FTC’s amended Franchise Rule with certain additional requirements, including a “state risk factor” cover page.

2007: Amended FTC Franchise Rule

Currently, franchise registration states require franchisors to prepare disclosure documents pursuant to the Uniform Franchise Offering Circular (UFOC) Guidelines. The amended FTC franchise rule, issued January 23, 2007, adopted disclosure requirements that closely tracked the UFOC Guidelines. The new FTC rule came into effect on July 1, 2007, but allowed use of disclosures based on the 1979 rule through July 1, 2008. After July 1, 2008, filers will no longer be able to use the UFOC Guidelines to prepare franchise disclosure documents.

2007-2008: Interim Guidelines

In light of the similarities between the new FTC rule and the UFOC Guidelines, NASAA announced its intention in 2007 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. NASAA adopted Interim Guidelines for the filing of a UFOC on June 22, 2007. The interim guidelines recommended that, as of July 1, 2007, registration states permit franchisors to file disclosure documents prepared in accordance with the new franchise rule.

2008: Franchise Registration and Disclosure Guidelines

The proposed 2008 Guidelines contain the same basic disclosure requirements set out in the Interim Guidelines and add a provision for electronic disclosure. In addition, they feature new filing instructions and uniform registration forms, that were not included as part of the Interim Guidelines. Instructions for preparation immediately follow each form. Specifically, the forms included are: (1) Uniform Franchise Registration Application; (2) Franchisor’s Costs and Sources of Funds; (3) Uniform Franchise Consent to Service of Process; (4) Franchise Seller Disclosure Form; (5) Franchise Disclosure Document; (6) Application Fee; (7) Guarantee of Performance; (8) Consent of Accountant; and (9) Advertising and Promotional Materials.

Request for Comment

The public comment period on the proposed 2008 Guidelines will remain open until March 27, 2008. Written comments should be sent to Dale Cantone, Chair of the Franchise and Business Opportunity Project Group on or before that date. In order to facilitate consideration of comments, NASAA additionally requested that copies be submitted to each member of the Project Group and the NASAA Legal Department.

The proposed Guidelines will appear in the CCH Business Franchise Guide and can be viewed, along with further details on those to whom comments should be directed, here on the NASAA web site.