What is a UFOC Uniform Franchise Offering Circular?

What is a UFOC?

The UFOC was a response to some unethical behavior in the 1960 and 1970. Today franchises are regulated by law. The Federal Trade Commission (FTC) requires that certain information be disclosed to potential franchisees before a contract can be signed or any payment made. The information is presented to potential franchisees in the form of a document - the UFOC.

The FTC requires franchisors in every state to provide a UFOC. In addition, some states require that the offer must first be approved and registered by the State before being promoted to prospective franchise buyers. These states are: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. Some states, like Illinois and Minnesota, have even more stringent requirements for the franchisor. This in turn affords better protection for the prospective franchisee.

What does the UFOC Contain?

The UFOC contains 23 items of information that must be updated to the most recent fiscal year end of the franchisor. If there is a substantial change to the information contained in the document, the franchisor must make a revision (to be issued quarterly). The disclosure document must be given to a franchisee to that which occurs earlier: the first personal meeting of franchisor and franchisee or ten working days prior to potential execution of a contract or money payment to the franchisor.

Standard UFOC Items:

1. The Franchisor, predecessors and affiliates is

2. Entrepreneurial experience

3. Litigation

4. Failure

5. Initial Franchise Fee

6. Other expenses

7. Initial Investment

8. Restrictions on Sources of Products and Services

9. Franchisee Obligations

10. Financing

11. Obligations for the franchisor

12. Territory

13. Brands

14. Patents, proprietary information

15. Obligation to participate in the actual operation of the franchise business

16. Restrictions on what the franchisee may sell

17. Renewal, termination, transfer and dispute resolution

18. The public figures

19. Complaints of profits

20. List of centers

21. Balance

22. Contracts

23. Receipt

How do I use this Franchise Document?

The UFOC is similar to a securities prospectus. It can provide the information necessary to evaluate a company or to target potential sales clients. An accredited franchise company, whether publicly traded or privately owned, must provide the disclosure document.

The UFOC is most valuable for potential franchisees franchisors and potential franchisors, investors, financial companies and suppliers franchisees.

Description of Standard UFOC Items:

1. The franchisor and any predecessor. This section contains historical material based on the franchisor, as well as any predecessors. Includes company names and trade, address and principal place of business. A description of the franchise should include information such as the nature of the franchise and the franchisor of professional experience, including experience in a franchise.

2. Identity and business experience of persons affiliated with the franchisor. All names of individuals who have important responsibilities in business management or support services provided to franchisees to be disclosed. Information indicating the person's current position in society and business in the last five years is also included. If a sales representative or broker franchise is involved, the same information is required.

3. Litigation history. Detailed information on criminal, civil and administrative litigation involving one of the officers, owners, directors or key executives of the company is described in this section if the statements or actions that relate to the potential franchisee.

4. History failure. The franchisor must indicate whether the company or any of its directors or officers have filed for Bankruptcy in the last 15 years. About every action must be included.

5. Franchisee of the initial franchise fee and / or other method of initial payment. This section indicates the franchise fee and any other initial payments to be made by the franchisee at the time of the execution of the franchise agreement. The section describes the method of payment and taxes, the use of such sums, and if the payment and expenses are reimbursable, in whole or in part.

6. Other taxes. All other expenses are detailed, including royalties, advertising costs, insurance costs, training costs, cost accounting and audit, consulting, leasing, costs of alteration and all other costs associated with the franchise.

7. Franchisee has estimated an initial investment. The estimated costs associated with the opening of a franchise are recounted wih a range as high and low for real estate, buildings, equipment, facilities, permits, furnishings, signage, inventory, working capital, etc. This section should include the name the person or persons to whom the payment is made for the previous year, on what terms and conditions that apply for reimbursement.

8. Obligations of the franchisee to purchase or lease from designated sources. All requirements that the franchisee must purchase goods, services, supplies, equipment, or for insurance / or opening and operation of the franchise by a franchisor designated source must be disclosed. Franchisors must also disclose if they receive income from the approved suppliers as a result of purchases by affiliates.

9. Obligations of the franchisee to purchase or lease in accordance with specifications or approved vendors. Further discussion on providing sourcing, this section lists all seponsibility the franchisee to purchase or lease is from pre-approved suppliers or as specified by the franchisor. Specific purchases are not normally included, but prices, discounts and procedures for approved vendors are generally cited by the franchisor.

10. The mode of financing. All funding programs that are offered or by the franchisor or its designates are described in this section.

11. Obligations of franchisor: other supervision, assistance or services. This section describes the initial and on-going services and support of the franchisor. It is often divided into two parts - the service obligations of the franchisor and services that can be performed by the franchisor. Some types of service and support are described as training, advertising, site selection, market research and information services.

12. Territorial rights. If the franchisor grants exclusive rights, land rights and will be described in this section. Any conditions which the franchisee must meet to maintain these rights, as well as the right of the franchisor, are also disclosed.

13. Trademarks, service marks, trade names, logo types and commercial sumbols. The franchisor must disclose information concerning the registration of trademarks, service marks, trade names, logos and sumbols types of trade with the U.S. Patent and Trademark Office. Also included is a list of states and countries where they are registered trademarks, as well as any limitations imposed on the franchisee for the use of such marks.

14. Patents and copyrights. This information lists the patents and copyrights that may be involved in the operation of the franchise and that may cover trade secrets and confidential information.

15. Obligation of the franchisee to participate in the management of franchise operations. If the franchisor requires the active participation of the franchisees in business management, it must be indicated. Terms and conditions for participation should be defined.

16. Restrictions on goods and services offered by franchisees. Any limitations or exclusions of goods and services that can be commerialized from franchisees are given in this section.

17. Renewal, termination, repurchase, modification and assignment of the franchise agreement and related information. This, the most complex and longest section, covers the requirements of the franchisor and franchisee options when a franchise should be renewed, terminated, repurchased, modified or assigned.

18. Agreements with public figures. If the franchisor has any compensation or endorsement program with a public figure, must be disclosed. If the public figure is involved in the ownership or management of the franchise, it must also be disclosed.

19. Current, average, projected or anticipated franchise, earnings or profits. There is an option here. Some franchisors will state that does not provide current, average, projected or expected sales and earnings to potential franchisees. If a franchisor makes a claim for sales, profits or gains, the franchisor must fully describe the method by which the claim is made.

20. Information on the concessions of the franchisor. The franchisor provides a synthesis of franchise sales, which operates the number, the number of agreements signed, but not in operation, and the number of company-owned units. Information on the number of franchises terminated or not renewed with the causes of termination or non-renewal for the last three years is also required.

21. Budget. In this section, a complete set of financial statemetns, usually a budget teh last fiscal year, an income statement and changes in financial position of the franchisor for the last three fiscal years. Most states require audited financial statements.

22. Franchise agreement and related documents. A copy of the license and any other document to be signed by the franchisee must be included as exhibits.

23. Acknowledgement of receipt of a potential franchise. Prospective franchisees are required to sign a receipt for your information was received from the franchisor .......