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What Special Restrictions are there to Advertising Franchise Sales?

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You and the franchisor may use "advertising" to promote the sale of franchises, subject to the limitations discussed below.

"Advertising" includes website pages, Internet ads, magazine ads, newspaper ads, brochures, handouts, CDs and DVDs oriented to prospects. Less obviously perhaps, "advertising" includes blank pro formas given to prospects, form letters or emails used to communicate with prospects, and copies of published articles and other materials given to prospects. For purposes of this handbook, "advertising" does not include consumer-oriented materials, such as sample ads, menus or point-of-sale displays, shown or given to prospects.

Advertising must be truthful and not misleading. For example, advertising may not reference studies that purport to show that franchisees are more successful than independent business people, if those studies, such as the discredited U.S. Department of Commerce or Gallup studies, have been found to be unreliable.

Advertising may not expressly or impliedly assure or guarantee success, profitability, earnings, or a safe investment that is free from risk of loss or default. Therefore, variations on the words "success," "profit," "proven," "lucrative" and "recession-proof," or any other term that states or implies earnings, must be used carefully and sparingly in advertising.

Advertising must be consistent with information in the franchisor's FDD. As to fees and initial investment costs, advertising must be supported by information in the FDD. For example, any initial fee or initial investment information in advertising must match, and may not go beyond, what is in the FDD. Advertising may not include financial performance representations, also called FPRs, unless the same FPRs are included in Item 19 of the franchisor's FDD. 

Advertising may provide some supplemental information that is not required or permitted to be included in the FDD. For example, a franchisor executive is required to include 5 years of employment history in Item 2 of an FDD and may not include more unless the executive has held the same position with the franchisor for longer than 5 years. Advertising may include much more information about an executive's experience and background.

A franchisor is prohibited from including a blank pro forma in its FDD, but it may provide a blank pro forma to a prospect to show typical categories of sales and costs. The franchisor may not help the prospect to fill in the blank pro forma. If used in this manner, the blank pro forma is advertising that provides permitted supplemental information to the prospect.

Advertising on the franchisor's website must include a disclaimer such as the following:

NOTE: This website is not a franchise offering. A franchise offering can be made by us only in a state if we are first registered, filed, excluded, exempted or otherwise qualified to offer franchises in that state, and only if we provide you with an appropriate franchise disclosure document. Follow-up or individualized responses to you that involve either effecting or attempting to effect the sale of a franchise will be made only if we are first in compliance with state registration or notice filing requirements, or are covered by an applicable state exclusion or exemption.

The following states regulate the offer and sale of franchises:

California, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Nebraska, New York, North Dakota, Rhode Island, South Dakota, Texas, Utah, Virginia, Washington and Wisconsin. If you reside, plan to operate or will communicate about the franchise in one of these states, you may have certain rights under applicable franchise laws or regulations.

This disclaimer should be on or linked to the first website page oriented to franchisee prospects, but is not required to be on or linked to each website page oriented to franchisee prospects. 

You may run ads in national publications such as Franchising World, Entrepreneur, Franchise Times or Franchise Update, and may post pages oriented to franchisee propects on the franchisor's website, without pre-submitting the ads or pages to any states.

You must pre-submit, before use, other types of advertising, such as local newspaper ads, brochures, handouts, CDs, DVDs, blank pro formas, form letters and emails, and copies of articles distributed to franchisee prospects, to the following states: California, Maryland, Minnesota, New York, North Dakota, Rhode Island and Washington.

New York requires you to add the following disclaimer to advertising:

NOTE: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.

California and Washington sometimes require you to pre-submit written consents permitting the use of third-party endorsements, such as franchisee testimonials. 

If you would like to know if you can franchise your business, connect with me on LinkedIn and give me a call.

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About this Entry

This page contains a single entry by Warren Lewis published on May 13, 2013 12:19 PM.

Why Franchise Attorneys Should not Run a Franchise System was the previous entry in this blog.

The QSR Workers Strike is Spreading. Are Your Franchisees Prepared? is the next entry in this blog.

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