A franchise or business opportunity seller must give the prospective buyer a detailed disclosure document at least ten (10) business days before the buyer pays any money or legally commit himself to a purchase. The disclosure document includes:
" Names, addresses, and telephone numbers of at least 10 previous purchasers who live closest to the buyer;
" A fully audited financial statement of the seller;
" Background and experience of the business's key executives;
" Cost of starting and maintaining the business; and
" The responsibilities buyer and the seller will have to each other once the buyer has invested in the opportunity.
Franchise sellers also must tell a prospective buyer in writing the number and percentage of owners who have failed.
The Indiana Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a comprehensive guide outlining the essential information that franchisors in Indiana must disclose to prospective franchisees. Adhering to the Federal Trade Commission's Franchise and Business Opportunity Rule, this checklist ensures transparency and protection for aspiring franchisees. Below, we will dive into the details of this checklist and explore the different types of disclosures it includes. The Indiana Checklist covers various significant aspects to guarantee that franchisees have access to crucial information before entering into a franchise agreement. Here are some key areas covered by the checklist: 1. Franchise Offering: This section highlights the franchise offering in detail, providing a comprehensive overview of the business model, products/services offered, and potential territories for operation. It helps prospective franchisees understand the nature of the opportunity they are considering. 2. Franchisor Information: This section requires franchise companies to disclose vital information about themselves. It includes details about the franchisor's legal name, type of entity, business experience, litigation history, and any bankruptcy filings. 3. Initial Fees and Investment: Franchisors must disclose all fees related to the franchise, including the initial franchise fee, ongoing royalties, advertising fees, and any additional costs involved. This helps prospective franchisees assess the financial commitments associated with the franchise opportunity. 4. Franchisee Obligations: This section outlines the responsibilities and obligations that franchisees are expected to fulfill. It includes information about the training and support offered by the franchisor, operational requirements, quality control standards, and any restrictions on suppliers or purchasing arrangements. 5. Territory and Competition: Franchisors should disclose details about the exclusive or non-exclusive territories available for franchisees, addressing any potential competition from company-owned or other franchised outlets. This helps prospective franchisees evaluate the market potential and determines their potential customer base. 6. Trademarks and Intellectual Property: Franchisors must provide information regarding the use of trademarks, copyrights, patents, and other intellectual property. This section explains the restrictions, permissions, and limitations associated with the brand's intellectual property rights. 7. Financial Performance Representation: While not mandatory, if the franchisor chooses to disclose financial performance data, this section guides them on how to present this information accurately. It also emphasizes the importance of substantiating such claims and provides guidelines to avoid misleading statements. 8. Renewal, Transfer, and Termination: Franchisees need to understand the terms and conditions related to renewal, transfer, and termination of the franchise agreement. This section covers details about renewal fees, transferability, rights to assign, and grounds for termination by both parties. These are some critical areas covered by the Indiana Checklist. By adhering to the provisions of this checklist, franchisors ensure compliance with FTC regulations and facilitate a transparent and informed decision-making process for prospective franchisees.
