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 Kentucky Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a comprehensive tool designed to ensure that franchisors in Kentucky comply with the disclosure requirements outlined by the Federal Trade Commission (FTC). By adhering to these guidelines, franchisors provide vital information to prospective franchisees, allowing them to make informed decisions about the franchise opportunity they are considering. Key elements encompassed by the Kentucky Checklist include: 1. Franchisor Background: Franchisors must disclose their full legal name, address, contact details, and any previous business names or corporate affiliations. This information is crucial for prospective franchisees to conduct due diligence and assess the credibility and experience of the franchisor. 2. Franchise Costs: A breakdown of all expenses associated with establishing and operating the franchise must be disclosed. This includes initial franchise fees, training costs, equipment and inventory costs, as well as any ongoing royalties or other fees payable to the franchisor. Providing a clear understanding of the financial commitments involved helps prospective franchisees evaluate the feasibility of the opportunity. 3. Obligations and Restrictions: Franchisors must outline the franchisee's obligations and any restrictions on the operation of the franchise. This includes obligations related to product sourcing, quality control standards, operating procedures, territorial restrictions, and exclusivity agreements. Understanding these requirements is vital for prospective franchisees to determine if they can align with the franchisor's business model and meet the stated expectations. 4. Litigation History: Franchisors are required to disclose if they or any of their key personnel have been involved in bankruptcy, litigation, or any legal proceedings related to their franchises. This information enables prospective franchisees to assess the potential risks and legal challenges associated with the franchisor and make informed decisions. 5. Financial Performance Representations: If the franchisor provides any financial performance representations or earnings claims, they must be disclosed along with supporting documentation. This information, which may include historical revenue and profit figures, presents prospective franchisees with insights into the potential profitability of the business. 6. Franchise Agreement: Franchisors must provide a copy of the franchise agreement, which outlines the terms, conditions, and obligations imposed on the franchisee. Reviewing this document is crucial for prospective franchisees to understand their rights, responsibilities, and any contractual limitations associated with the franchise. It is important to note that the Kentucky Checklist is specific to ensure compliance with the FTC Franchise and Business Opportunity Rule. While there may be different variations or additional requirements from state to state, the purpose remains the same: to protect potential franchisees and promote transparency within the franchising industry.The Kentucky Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a comprehensive tool designed to ensure that franchisors in Kentucky comply with the disclosure requirements outlined by the Federal Trade Commission (FTC). By adhering to these guidelines, franchisors provide vital information to prospective franchisees, allowing them to make informed decisions about the franchise opportunity they are considering. Key elements encompassed by the Kentucky Checklist include: 1. Franchisor Background: Franchisors must disclose their full legal name, address, contact details, and any previous business names or corporate affiliations. This information is crucial for prospective franchisees to conduct due diligence and assess the credibility and experience of the franchisor. 2. Franchise Costs: A breakdown of all expenses associated with establishing and operating the franchise must be disclosed. This includes initial franchise fees, training costs, equipment and inventory costs, as well as any ongoing royalties or other fees payable to the franchisor. Providing a clear understanding of the financial commitments involved helps prospective franchisees evaluate the feasibility of the opportunity. 3. Obligations and Restrictions: Franchisors must outline the franchisee's obligations and any restrictions on the operation of the franchise. This includes obligations related to product sourcing, quality control standards, operating procedures, territorial restrictions, and exclusivity agreements. Understanding these requirements is vital for prospective franchisees to determine if they can align with the franchisor's business model and meet the stated expectations. 4. Litigation History: Franchisors are required to disclose if they or any of their key personnel have been involved in bankruptcy, litigation, or any legal proceedings related to their franchises. This information enables prospective franchisees to assess the potential risks and legal challenges associated with the franchisor and make informed decisions. 5. Financial Performance Representations: If the franchisor provides any financial performance representations or earnings claims, they must be disclosed along with supporting documentation. This information, which may include historical revenue and profit figures, presents prospective franchisees with insights into the potential profitability of the business. 6. Franchise Agreement: Franchisors must provide a copy of the franchise agreement, which outlines the terms, conditions, and obligations imposed on the franchisee. Reviewing this document is crucial for prospective franchisees to understand their rights, responsibilities, and any contractual limitations associated with the franchise. It is important to note that the Kentucky Checklist is specific to ensure compliance with the FTC Franchise and Business Opportunity Rule. While there may be different variations or additional requirements from state to state, the purpose remains the same: to protect potential franchisees and promote transparency within the franchising industry.
