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 Minnesota Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule is a comprehensive document that outlines the necessary disclosures that franchisors operating in Minnesota must provide to potential franchisees. This checklist ensures compliance with the Federal Trade Commission (FTC) regulations, which aim to protect the interests of prospective franchisees and provide them with the necessary information to make informed decisions. Here are some key elements that the checklist covers: 1. Contact Information: The franchisor must provide their contact details, including name, address, phone number, and email, allowing potential franchisees to reach out with any inquiries or concerns. 2. Franchise Costs: A detailed breakdown of all costs associated with the franchise, such as initial investment, franchise fees, ongoing royalties, advertising fees, and any other financial obligations, must be disclosed. Additionally, any potential additional costs, like equipment purchases or lease agreements, should be clearly mentioned. 3. Legal Actions: If the franchisor or any of its key personnel have been involved in any previous or ongoing legal actions, such as litigation or bankruptcy, these must be disclosed. This gives the potential franchisee insight into potential risks or instability within the franchisor's business structure. 4. Initial and Ongoing Training: Detailed information about the training programs provided by the franchisor, both initially and ongoing, should be included. This section should cover the duration, location, content, and any associated costs with the training. 5. Territory: The franchisee's exclusive or non-exclusive rights to a specific territory or location should be clearly outlined. This includes any restrictions on competition from other franchisees within the same brand. 6. Intellectual Property: The franchisee needs to be informed about the franchisor's use of trademarks, patents, copyrights, or any other intellectual property. This section should indicate how the franchisee can or cannot use these elements. 7. Renewal and Termination: The terms and conditions surrounding franchise renewal and termination should be explained in detail. This section should include any associated fees, notice periods, and conditions for termination or non-renewal of the franchise agreement. 8. Financial Performance Representations: If the franchisor provides any financial performance representations or projections, these must be substantiated by accurate and verified data. The checklist ensures that any financial claims made by the franchisor are not misleading or deceptive. It is important to note that while these are general elements that should be covered in the Minnesota Checklist, franchisors may have additional requirements specific to their industry or business model. It is recommended for franchisors to review both the FTC Franchise and Business Opportunity Rule and any state-specific regulations for comprehensive compliance.
