Thursday, December 12, 2019

New FDD Cover Pages on 2020 Horizon

The North American Securities Administrators Association (NASAA) represents state and provincial securities regulators in the United States, Canada and Mexico.

So what do these guys have to do with franchising?

Before the Federal Trade Commission (FTC) got in the franchise game, state securities regulators concerned themselves with franchise protections -- for instance, developing the old Uniform Franchise Offering Circular (UFOC). Today, NASAA still  plays a role in franchising, offering its guidance to the 14 registration states (click here registration states) and the FTC. As a practical matter, what is required in the registration states rules the roost, meaning Franchise Disclosure Documents (FDDs) typically incorporate what NASAA and the registration states require.

Starting on January 1, 2020, NASAA guidelines require the use of new Cover Pages (click here new Cover Pages). As a matter of franchise practice, all FDDs will then carry or require the new pages.

In summary, the pages add to the State Cover Sheets portion of the FDD. The new (or revised) pages are:

  • How to Use This Franchise Disclosure Document
  • What You Need to Know About Franchising Generally
  • Special Risk(s) to Consider About This Franchise
  • Revisions to the State Effective Dates page
All in all, the additions are positive, "buyer-oriented," and assist in understanding how to use these massive FDDs. The new Cover Pages call out the most basic questions a franchise-buyer may have and tells them where to find it. For instance, "How much can I earn?" directs the buyer to Item 19 along with the following commentary: "Item 19 may give you information about outlet sales costs, profits or losses. You should also try to obtain this information from others, like current and former franchisees. You can find their names and contact information in Item 20 or Exhibit [ ]."

Let's hope franchise-buyers take advantage of this new road map!