Buying a franchise is often a good idea for entrepreneurs because it is less risky. It gives access to the business’s propriety knowledge, trademarks and processes, which allows the franchisee to sell products or services under the name of the business. Here are a few common questions and answers to help guide you through issues that may arise as you try to buy a franchise.
- Question: Am I allowed to get a company’s pre-sale disclosures?
- Question: How can I become informed about complaints against a company?
- Question: Can agencies tell me if a company is fraudulent?
- Question: What should I do if I want to file a complaint against a company?
You are allowed to obtain a company’s pre-sale disclosures. However, depending on the state you live in, you may be unable to do so. There are 15 states that save files of franchising circulars, and 25 states that need to have business opportunity disclosure papers filed. Most states are unable to provide copies of these types of disclosures. Some will allow you to come in and review the documents by appointment. If you are buying a franchise from a private company, you may be able to get the necessary documents directly from the company. You can get more information regarding obtaining a company’s pre-sale disclosure by visiting the Federal Trade Commission’s website.
You can only get information about consumer complaints by writing to the FTC. Address any requests regarding complaints against a company to:
Freedom of Information Act Request
Consumer Response Center (“CRC”)
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
Make sure to identify your letter as an “FOIA Request.” You should also include your name, address, daytime phone number and the name and address of the company you want a report about. Usually there are no fees, but it is a good practice to declare the maximum you would pay. The FTC will likely contact you if a fee is required.
The FTC and other federal or state agencies cannot give you information about whether a company is legitimate or operates in good faith. The FTC can, on the other hand, share any consumer complaints they have received regarding the company. This information is helpful, but you may need to do some additional research to make sure you are not dealing with a fly-by-night franchise looking to scam investors.
The best way to check the history of a franchisor is to talk with prior purchasers, in person if possible. The Franchise Rule requires businesses to include a list of names, addresses and telephone numbers of at least the last ten purchasers on their disclosures.
Like requests, any complaints have to be received in writing. There aren’t any special forms required, but try to keep your complaint between one and two pages. It is important to include
- Details about promotional materials, offering circular or disclosure statements you thought were misleading or deceiving
- Your name, address and daytime telephone number
- Copies of documents the Commission should have
You can ensure that your letter will be kept confidential by printing the words “Privileged and Confidential” at the top of every page. Address your complaint to:
Franchise & Business Opportunity Complaint
Federal Trade Commission – Rm. 238
Washington, D.C. 20580
There are two forms the FTC permits the use of for the offering circular. The Franchise Rule disclosure form can be found in the Code of Federal Regulations, Volume 16, Part 436 (16 CFR § 436). The alternative disclosure form, called the Uniform Franchise Offering Circular, is issued by the North American Securities Administrators’ Association. You can get this form from:
North American Securities Administrators’ Association
10 G St NE, Ste 710
Washington, D.C. 20002
You can find more information about the current guidelines in the Business Franchise Guide, published by Commerce Clearing House, Inc. This publication is available in many libraries specializing in law.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.