Under the Federal Franchise Rule franchisors are required to disclose their “Financial Statements” in Item 21 of the Franchise Disclosure Document. All financial statements must be prepared in accordance with Generally Accepted Accounting Principals (GAAP) and in all but an extremely limited number of situations involving a start-up franchisor, a franchisor’s financial statements must be “audited.” In the franchise regulations (16 CFR Parts 436 and 437) FTC provides detailed information respecting a franchisor’s Item 21 disclosure requirements, including:
Other provisions apply for start-up franchisors (a topic that will be discussed in future posts) and the disclosure of the financial statements of a franchisor’s affiliates.
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