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While the disclosure document conversion process has gone quite smoothly for many franchisors, there are lingering issues.
The Federal Trade Commission's announcement in January 2007 that it had-after roughly 12 years of rulemaking-finally revised the federal franchise disclosure rule triggered wide-ranging responses. These responses included celebration of the FTC's modernization of the 28-year old disclosure law, apathy about a process that to some appeared never-ending, concern about how franchisors would change their franchisedocument preparation and sales-compliance procedures after almost 15 years of relative certainty, dating from 1993, the last update of the "Uniform Franchise Offering Circular Guidelines."
Franchisors in the United States have known for some time that July 1, 2008 looms as the mandatory deadline by which they must "convert" their disclosure documents from the Uniform. Franchise Offering Circular format to the FTC-prescribed franchise disclosure document format. By the time this article is published, virtually all franchisors likely will have converted to this format.
While the new format is materially different from the UFOC format in numerous respects, most UFOC disclosures remain intact in substance and form. The areas where these formats and related franchise sales compliance procedures diverge have, so far, created the greatest uncertainty and ambiguity.
State Filings
While many expected that the disclosure-document conversion process would create material delays in the franchise registration states reviewing the newly-formatted documents, few problems actually have been encountered with the states when substantially compliant materials have been submitted. While a few states have questioned the proper handling of certain new disclosures, these inquiries generally have been resolved quickly and collaboratively. Consequently, while some delays are expected as they are every spring given the number of renewal filings, franchisors should not expect undue difficulty with franchise registration states if they have carefully prepared their disclosure documents.
Item 20 Tables
Preparing the Item 20 tables under the UFOC format often antagonized franchisors unable to reconcile system-wide numbers. Many assumed that converting from three UFOC tables to five disclosure-document tables would aggravate the problem. Actually, though, the new tables have created "symmetry" in the system-wide census, thanks in large part to new definitions of how various events should be classified. While certain nuances in the table completion process need to be resolved with time, there is greater...