* General public solicitation of investors without requiring an offering circular
Franchise laws prohibit distribution of most forms of information to prospective franchisees unless it is an offering circular complying with strict Federal and state requirements.
Usually, the disclosure is provided by a "Uniform Franchise Offering Circular." Another document, called the "FTC Format," is allowed in many states, but is used less often.
While some franchisors merely post their offering circular
on their Web site, this is not common.
When a lawyer completes an offering circular for a new client, he should provide the client with a summary of the laws that regulate the sale of a franchise.
The letter should remind the franchisor of the federal rule requiring a copy of the offering circular be given to a prospective franchisee at the first face-to-face meeting at which the sale of the franchise is discussed, and at least 10 business days before any money is paid by the franchisee, or the franchisee signs any contract.
To this end, an "offering circular." or OC (also known as an offering memorandum), is prepared as the principal disclosure document associated with the transaction, containing detailed disclosure on the issuer's business, results and financial condition.
As noted above, an offering circular, though not a public prospectus, must satisfy the relevant anti-fraud requirements of the securities laws.
As to earnings claims, the proposed amendments would require franchisors making earnings claims of gross revenue or sales in Item 19 of the Uniform Franchise Offering Circular
(UFOC) to include a statement of whether or not the earnings claim figures reflect the cost of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figure to obtain net income or profit.