UFOC History Brief
The offer and sale of a franchise in the United States is regulated at both the federal and state level.
In 1979 the United States Federal Trade Commission (FTC) adopted its trade regulation rule 436 (the "FTC Rule"), which specifies the minimum amount of disclosure that must be made to a prospective franchisee in the United States.
In addition to the FTC Rule, more than a dozen states ("registration states") have adopted their own rules and regulations for the offer and sale of franchises within their borders. These states follow a more detailed disclosure format, known as the Uniform Franchise Offering Circular (UFOC).
Full registration is required by California, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, and Washington. Other states that regulate franchise offerings include Hawaii, Michigan, Oregon, Texas, and Wisconsin.
The monitoring and revisions to the UFOC are under the authority of the North American Securities Administrators Association (NASAA). Each of the registration states has developed and adopted its own statutory version of the UFOC.
In 1993 a new version of the UFOC was adopted by NASAA, which was approved by the FTC that same year. In 1995 the registration states approved the new UFOC and mandated its use for filings in their states.
The FTC Rule sets forth the minimum level of protections that shall be afforded to prospective franchisees, and does not preempt state law to the extent that the registration state offers its citizens a greater level of protection.
One of its requirements is that every franchisor offering franchises in the United States deliver an offering circular (containing specified disclosure items) to all prospective franchisees within certain specified time requirements.
In 1999 the FTC announced a "Notice of Proposed Rulemaking" (NPR) seeking public comments on proposed revisions to the FTC Rule. The proposed rule will reorganize, edit and streamline the UFOC disclosures for clarity, and in certain instances has made substantial changes. It also will change the manner and timing for delivery of the UFOC to prospective franchisees. It is anticipated that the new rule (Disclosure Requirements and Prohibitions Concerning Franchising) will become effective in 2003/2004. The new rule proposes to eliminate business opportunity ventures from coverge under the FTC Rule and establish a separate trade regulation rule for business opportunities.
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