Franchise Rule


The Franchise Rule published by the Federal Trade Commission (FTC), seeks to facilitate informed investment decisions and prevent deception in the sales of franchises by requiring franchisors to provide prospective franchisees with detailed information prior to the prospect making a financial commitment. The Franchise Rule does not regulate the terms of the contractual relationship between franchisors and franchisees.

The Franchise Rule requires franchisors to make material disclosures in the following five categories:

The nature of the franchisor and franchise system being offered;
The costs of purchasing and operating a franchise;
The terms and conditions of the contractual agreement between the franchisor and franchisee;
The franchisorís financial status in terms of net worth, income and expenses; and
The names and addresses of existing franchisees who can provide information about their experience with the franchisor and the business itself.

The Franchise Rule has the absolute force of law.


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