Franchisors must keep their UFOC’s up-to-date, and at a minimum, must be updated when:
- The information contained in the UFOC document must be current as of the close of the franchisor’s most recent fiscal year. After the close of the year, the franchisor must prepare a revised disclosure document within 90 days.
- The franchisor must update its disclosures to reflect any material changes within a reasonable time after the close of each fiscal year quarter. A material change is generally “any fact, circumstance, or set of conditions which has a substantial likelihood of influencing a reasonable franchisee or a reasonable prospective franchisee in the making of a significant decision relating to a named franchised business or which has any significant financial impact on a franchisee or prospective franchisee.” Examples of a “material change” include:
- changes in the franchisor’s management, corporate structure, address or interim financial statements;
- changes to the offer itself;
- closing or failing to renew a significant number of franchisees; and
- the filing of material litigation or administrative proceedings.
- Third, the FTC Rule contains specific updating requirements if a franchisor makes earnings representations. A franchisor must notify prospective franchisees of any material changes in the information contained in its attached earnings claim document prior to entering into the franchise relationship.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
Ryan,
The FTC Amended the Franchise Rule, as of July 1, 2008 adoption of the amended rule is mandatory. The FTC changed the name of the Uniform Franchise Offering Circular (UFOC) to Franchise Disclosure Document (FDD). I’m calling it the “FUDD”.
My question to you, is what happens in registration states like Illinois? Will the document still be called a UFOC or will the name be changed to FDD?
Jim
Ryan;
Do you have any case law on what constitutes a material change in business as opposed to a material change in the business conditions?
The Supreme Court of Canada made this distinction recently in a securities case.
Hi Michael. Not off the top of my head. I’ll dig around and let you know if I find anything.
Thanks, Ryan. I had a couple of posts my site about how out of date the list of franchisees were in some UFOCs.
For example, the latest Play and Trade UFOC at Caleasi is for 2007: with a list of franchisees current to the end of 2006.
Think a few things might have happened in the last year?