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What Is The Limited Financial Statement Phase-In Exemption For New Franchisors?

Franchisors, in Item 21 of their Franchise Disclosure Document, must include and disclose audited financial statements. However, for new franchisor within their first fiscal year, there is a limited exemption. If you meet the criteria for being a new franchisor, you are not affiliated with other franchisors and, in the past, you did not produce audited financial statements, then during your first fiscal year of franchising you may satisfy FDD Item 21 by disclosing an "unaudited" opening balance sheet. During your second fiscal year as a start-up franchisor, you must incorporate and disclose in FDD Item 21 "audited" financial statements comprised of a balance sheet and an accountants opinion as to the franchisors financial condition based upon a comparison of the franchisor's opening balance sheet and its current balance sheet. For the third fiscal year and beyond, no exemption applies and you must disclose and include fully audited financial statements.

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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