When is a Franchisor Required to Give a Prospect the FDD?

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The franchisor must furnish its FDD to a prospect whenever the prospect reasonably requests it. If you merely represent the franchisor and do not handle disclosure directly, you must communicate the request to the franchisor. The franchisor then must fulfill the request.

A request from a person who has not yet qualified and been accepted as a prospect does not trigger this step. Only a request from a bona fide prospect triggers it.

The purpose of the step is to permit the prospect to obtain and review the FDD before incurring significant costs to investigate the franchise or travel to the franchisor's office. Therefore, the franchisor may not refuse to furnish the FDD until, for example, the prospect attends discovery day.'

The FTC franchise rule does not require a request to be in writing, and does not say how quickly an FDD must be furnished after it is requested. Presumably, most prospects will make requests by telephone or in emails. You and the franchisor must establish and maintain a system for recording and responding promptly to these requests.

The FTC franchise rule assumes a prompt response, but permits some flexibility based on extenuating circumstances such as a poorly timed request (for example, a request made late on Friday afternoon) or a request made when the FDD is being updated.

If a request is made when the FDD is being updated because of a "material change" (see "Step 9: Re-Disclosure If 'Material Change' Occurs" below), you or the franchisor may respond that the FDD is being updated and will be furnished after it is updated or registered.

The FTC franchise rule permits you to furnish the FDD directly to the prospect or to a representative of the prospect, such as a partner, owner, officer, employee, agent, lawyer or accountant.

Some states may not permit you to accomplish disclosure by merely furnishing the FDD to a representative.

Check with the franchisor's lawyer or compliance manager.

You are not required to furnish an FDD in the particular format requested by a prospect. However, if the prospect refuses to accept delivery of an FDD because of its format, you may not make a franchise offer or sale to that prospect.

Neither you nor the franchisor may charge any fee in connection with a prospect's right to receive an FDD whenever he or she reasonably requests it.

(This was the fifth post in a series of 11 posts on making compliant franchise sales.)

If you would like all 11 of these tips in a bound book, for a handy desk reference, why not click here & sign up for the Franchise Seller's Handbook.

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Timely Franchise Disclosure Document is one of the things after the 2008 FTC Rule change confuses franchisors and franchise brokers.

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About this Entry

This page contains a single entry by Warren Lewis published on January 23, 2014 12:37 PM.

Who Else Wants to Win at Business like a General? was the previous entry in this blog.

How to Manage Your Franchise Systemic Change Effectively is the next entry in this blog.

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