Definition: The UFOC is the first document you will review as a prospect franchisee and outlines the extent of corporate disclosure that the Franchisor must provide you with at least 10 business days prior to the signing of the Franchise Agreement.
This “disclosure statement” includes such items as the Franchisor’s obligations, the Franchisees obligations, territory boundaries, and initial and ongoing fees to be paid. There are a total of 23 categories of information in the UFOC.
Disclosure Requirement & the FTC Rule: Prior to the UFOC, Franchisors were regulated by a simpler form of disclosure known as the “FTC Rule” established in 1979 by the Federal Trade Commission. Franchisors can still provide a disclosure statement as outlined by the FTC Rule. Most Franchisors, though, have adopted the UFOC which is a more detailed disclosure format and required by law to be registered in 13 states known as the registration states. Each state can impose its own specific regulations and terms within the UFOC.
NASAA: The governing body that administers and monitors the UFOC is the North American Securities Administrators Associations (NASAA). NASAA adopted a new version of the UFOC in 1993 and was soon followed by the approval of all the registration states in 1995.
Revisions to the FTC Rule: In 2004, the FTC released a report on proposed changes to the FTC Rule. When it comes into effect, Franchisors will have to make significant changes to their existing UFOCs and follow new rules, namely how and when the UFOC will be delivered to prospective Franchisees. It is expected that “business opportunitiy” ventures are to see new disclosure rules similar to those in franchise systems.
To date, the new proposed changes to the FTC rule has not gone into full effect.
