Major Changes Coming in the New Franchise Disclosure Documents

You must have heard about the winds of change taking place in the franchise world. The old UFOC is being phased out and in its place; a new document called Franchise Disclosure Document is being introduced. There are quite a few additions and alterations, but the framework is based on the UFOC. So, here is some of the major changes item wise that you can expect in the new Franchise Disclosure Document.

Item	UFOC	FDD
1.	This section mentioned the franchisor, any predecessor and affiliated company	This section is now termed as The franchisor and any parents, predecessor and affiliates. Mentioning the name of the parent company that backs the franchisor in some way related to the franchise business is now compulsory
2.	Covered the background information of the directors and executives of the franchisor and also the list of the brokers.	In addition to directors and executives, history and background of the management people directly in charge of the sales and operation of the franchise business. Also, the list of the brokers has been removed.
3.	This section was about the litigation history of the franchisor.	Many changes have been made in this section. They are - • Summary of material litigation cases that were filed by the franchisor against the franchisees. • A list of cases that were filed by the government against a franchise firm or an affiliate, which were in any way related to the franchisor for the last 10 years. • Cases that were filed against the parent company that financially or otherwise support the franchisor. • All confidential settlements have to be disclosed (with certain exemptions); even if the parties have signed a confidentiality clause.
8.	Dealt with suppliers approved by the franchisor	Must include the names of the suppliers in which an officer of the franchisor has special interests.
12.	Defined the guaranteed territory, if offered by the franchisor.	There must be a warning, if the franchisor is not giving a guaranteed territory. It will also address the right of the franchisor or its affiliate to use alternative channel of sales like internet or telemarketing in the franchisee’s area of operation. It will also contain any restrictions on the franchisee to sell in this alternate way outside his designated area of operation.
19.	The much debated “earning claim”, which may be presented in an attachment. If any earning claim was given, all outlets that had reached the given performance level were listed.	First of all, it has been renamed as “financial performance representations”. Moreover, it will contain the disclosure of the location of the franchisees that have shown the given performance level of the area, which formed the base of the performance representation. Also, the franchisor can give the performance level of a subset of franchisees with information of the subset.
20.	List of franchisees – existing and that have left the franchise network.	A vast change has been made in this section. They are: • A summary of the number of franchisees from the beginning and the end of the last three years. • A detailed summary of the number of transfers within the system. • Details of the number of outlets that were terminated, not renewed, bought back by the franchisor or that were closed for some other reason. • Number of company-owned outlets. • A warning that if the person is starting a franchise with them, his contact number may be given in the future FDD.