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.
Title: Texas Checklist Regarding Matters that must be Disclosed to Prospective Franchisee in Accordance with FTC Franchise and Business Opportunity Rule Keywords: Texas, checklist, matters, disclosed, prospective franchisee, FTC, Franchise and Business Opportunity Rule Introduction: When contemplating franchise ownership in Texas, it is crucial for prospective franchisees to understand the necessary disclosures mandated by the Franchise and Business Opportunity Rule set forth by the Federal Trade Commission (FTC). This checklist highlights the key matters that must be disclosed to prospective franchisees in Texas, ensuring transparency and informed decision-making. Let's explore the various types of checklists that Texas franchise systems must adhere to in accordance with the FTC guidelines. 1. Financial Disclosures: Franchise systems in Texas are required to provide precise financial information to prospective franchisees. This includes a franchise disclosure document (ADD) that covers aspects such as initial investment costs, ongoing fees, and potential profitability projections. The ADD should provide clear and detailed financial statements to help prospective franchisees evaluate the business's financial health and viability. 2. Franchisor's Background Information: The FTC mandates that franchisors disclose comprehensive details about their background, experience, and executive team. This aspect ensures potential franchisees can assess the franchisor's expertise, track record, and support systems. Key information includes litigation history, bankruptcy filings, previous experience in operating franchise systems, and any criminal record of the franchisor's key executives. 3. Franchise System's Performance: Prospective franchisees must be provided with crucial information regarding the franchise system's performance and franchisee success rates. This can be done through the disclosure of average revenues and earnings, as well as the number and percentage of franchise units that have ceased operations or been transferred. This data enables potential franchisees to evaluate the financial potential and stability of the franchise opportunity. 4. Territory and Site Selection: The checklist requires franchisors to disclose details of the territory or area granted to franchisees, including any exclusive rights. Specific guidelines on determining territorial boundaries should be provided, along with information on the process of site selection for the franchise unit, if applicable. 5. Training and Support Programs: Franchisors need to outline the training and support provided to franchisees. These details should include information on initial training programs, ongoing support, marketing assistance, access to proprietary systems, and operational manuals. This ensures that potential franchisees understand the level of training and support they can expect from the franchisor. 6. Continuing Fees and Expenses: Prospective franchisees must receive clear information about all fees and expenses associated with the franchise system. This includes ongoing royalties, advertising contributions, technology upgrades, inventory purchases, and any other mandatory payments. A detailed breakdown of these costs is essential for potential franchisees to evaluate the financial commitments involved. 7. Renewal and Termination Terms: Franchisors must disclose the terms and conditions associated with renewing or terminating the franchise agreement. Information about renewal fees, restrictions, grounds for termination, and any transfer restrictions are crucial for potential franchisees to understand their rights and obligations. Conclusion: Compliance with the FTC Franchise and Business Opportunity Rule is necessary for franchisors operating in Texas. By following the Texas Checklist Regarding Matters that must be Disclosed to Prospective Franchisee, franchisors can ensure transparency and provide prospective franchisees with all the necessary information to make well-informed decisions. Understanding the outlined key matters will empower potential franchisees to assess opportunities thoroughly and embark on a successful franchise journey in Texas.
