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The Franchise Circular
2. Setting up a Franchise Business --The Franchise Circular

State and Federal laws related to franchise registration requires submitting a Franchise Circular or Offering Circular for approval by the licensing board. This is often referred to as the Uniform Franchise Offering Circular (UFOC). This is the most important and comprehensive document in the franchise development process. It is from this document that rights of both the franchisor and franchisee are established. It is from this document that the franchise is approved or disapproved by the state registrar. It is from this document and the promises it makes that liability may spring. As a result, it is important for each franchisor to painstakingly review this document with their legal counsel.

The UFOC is the proposal that is submitted to prospective franchise purchasers called franchisees. It must be provided to any prospective purchasers no less than ten days before any agreements are reached or before any money exchanges hands. It sets forth the operations of the business and usually includes the proposed franchise agreement as part of its exhibits.

The UFOC is reviewed before a franchise can first be registered to ensure that it accurately reflects the business operations. This includes, at a minimum, disclosing:

  • the support services and goods will be offered by the franchisor;

  • resumes setting forth the business experience of the principal people who will run the franchise system;

  • the history of any legal actions including civil and criminal litigation related to the franchisor its predecessors, affiliates, management personnel and/or sales people;

  • whether the franchisor, its affiliates, predecessors, officers or general partners have filed for bankruptcy in the last 10 years;.

  • the obligations of the franchisee.

The Offering Circular will also include information relative to a franchise purchase. This may include:

  • the initial franchise fee necessary before a business can open including any application fees, payments for fixtures, equipment, or inventory that the franchisee must purchase from the franchisor;

  • total initial investment which would include fees related to acquisition of property, leases, construction and remodeling, furnishings, fixtures, inventory, licenses. insurance and operating funds;

  • payment terms such as when each portion of the franchise fee is payable and/or whether the initial franchise payment is credited against the final purchase price;

  • when a refund of the initial fee is payable;

  • how ongoing franchise fees will be calculated and paid;

  • how the franchise interest may be sold or alienated.

This offering circular must be updated on an annual basis. It will also specify the geographic territory limitations, if any, for each franchisee.

For Assistance on your Franchise Issues Call 612-240-8005

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