What is a Uniform Franchise Offering Circular (UFOC)?
What is a Uniform Franchise Offering Circular (UFOC)? This is a document that must be provided by the franchisor to the prospective franchisee at least 10 business days before any agreement of sale is signed and finalized.
What is the importance of this document? Well, it is considered a disclosure statement that covers such items as the Franchisor's obligations, the Franchisee's obligations, territory boundaries, and initial and ongoing fees to be paid. All in all, 23 important subsets of information are included in this comprehensive disclosure statement about the franchise that the franchisee is about to invest in. (See below for a full listing of the information that makes up the document).
Furthermore, since prospective franchisees need to have enough information to be able to compile a business plan for financing purposes, the franchisor must offer sufficient documentation for franchisees to forecast future expenses for the business.
The UFOC is non-negotiable and is written within a consistent or "uniform" set of criteria. Individual states are not afforded the opportunity to change the terms and conditions of a franchise agreement. The only items that have any flexibility are territory location and possibly extreme demographic disadvantages.
Since 1995, the Federal Trade Commission (FTC) has required that this document be written in plain English rather than be full of legal terms that the layman cannot understand. The North American Securities Administrators Associations (NASAA) administers and monitors the UFOC.
Following is a list of the 23 categories included in the UFOC:
The Franchisor and Any Predecessors
Identity and Business Experience of Persons Associated with Franchisor
Litigation History
Bankruptcy (any franchisees who may have filed)
Listing of the Initial Franchise Fee and Other Initial Payments
Other Fees and Expenses
Statement of Franchisee's Initial Investment
Obligations of Franchisee to Purchase or Lease from Designated Sources
Obligations of Franchisee to Purchase or Lease in Accordance with Specifications or from Authorized Suppliers
Financing Arrangements
Obligations of the Franchisor; Other Supervision, Assistance or Services
Exclusive/Designated Area of Territory
Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols,
Patents and Copyrights
Obligations of the Franchisee to Participate in the Actual Operation of the Franchise Business
Restrictions on Goods and Services Offered by Franchisee
Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
Arrangements with Public Figures
Actual, Average, Projected or Forecasted Franchise Sales, Profits or Earnings
Information Regarding Franchises of the Franchisor
Financial Statements
Contracts
Acknowledgement of Receipt by Respective Franchises
Upon receipt of the UFOC, it is essential that the franchisee evaluate the entire document before signing into an agreement. Also, it is important to note that although the document is required by law, it has not necessarily been reviewed for accuracy by a legal body. Therefore, it is highly recommended that a franchise attorney assess the document for accuracy.
If there is any hesitation on the part of the franchisor to provide you with the UFOC, you may wish to consider a different opportunity.
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