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Franchisor Services
The Franchise Disclosure Process (Part A)
When starting a franchise in New York, the law requires the franchisor to provide a Franchise Disclosure Document (FDD). This document is meant to disclose information that will help educate a franchisee. The FDD must include specific financial information about the business franchisor, as well as disclose any lawsuits or bankruptcies that the company experienced in the past.
The laws that govern the franchise disclosure process are overseen by the Federal Trade Commission (FTC).
Receiving the FDD from the Franchisor
By law, a franchisee must receive the FDD no less than 14 days before signing a franchise agreement. This gives prospects 2 weeks to thoroughly review the disclosures before signing a legally binding contract. If a prospect requests an FDD for an earlier disclosure, then by law the FDD must be provided upon the prospect's request.
According to the FTC, the FDD must include the following information about the franchisor:
- Latest annual balance sheet, as of the end of the 2 most recent fiscal years;
- Statement of operations for the 3 most recent fiscal years;
- Statement of stockholders' equity for the 3 most recent fiscal years;
- Statement of cash flows for the 3 most recent fiscal years and
- Information about any lawsuits or bankruptcies in the company's history.
When starting a franchise in New York, a prospective franchisee should have the FDD examined by a franchise attorney.
FDD Formats
When starting a franchise in New York, a franchisor can deliver the FDD by hand, or submit it in electronic format. Electronic format can be through email, or by access via the Internet. If your FDD is in an electronic format, the prospect must be able to download, store, print, or otherwise maintain the FDD.
An electronic FDD cannot contain external links, audio/video features, or any form of advertising messages. Electronic delivery will still require a signed receipt from the franchisee. However, the receipt may be signed and returned electronically.
If you have questions about electronic disclosures when starting a franchise in New York, you can get the professional advice of a New York franchise attorney.
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