UFOC Registration Filing & Expiration Dates
The following was kindly provided to us by Holmes & Lofstrom in reply to a query from us on this confusing subject. We suggest that as a Franchise Executive you bookmark this page.
Our question to Holmes & Lofstrom was related to the handling of non registration state UFOCs when all or some of the states are rolled up into a single UFOC encompassing both the Non Registration States and the Registration States.
Holmes & Lofstrom contact information can be found in the Attorney Directory in the Resources section on the left margin of this page.
Nancy:
Good question (actually, quite a sophisticated one, as you'll see from some of the analysis below), and the conclusions depend on whether you're focusing on documents used in non-registration states (sometimes called "FTC states") or documents to be used in a registration state.
[By the way, as I understand it, the reason you need to know the expiration date(s) is so that you can adjust your system to not send out a UFOC after it has expired in any particular state or generally. Also, for purposes of this memo, I'm not addressing when a UFOC is amended (or is required to be amended - some Franchisors fail to do amendments when they should!)and when the old un-amended form can no longer be used. If you'd like, we can discuss these areas also and we may be able to provide some guidelines to protect Franchise.com and its clients.]
Non-Registration States
For these states, the FTC Franchising Rule (the "FTC Rule") determines when a UFOC "expires" and must be updated.
Expiration of a UFOC under the FTC Rule is tied to the Franchisor's fiscal year, which will normally be disclosed in the Franchisor's most recent financial statements. FTC Rule 436.1 (a) (22) sets forth the "currency requirements" for UFOCs and states that
"(a)fter the close of each fiscal year, the franchisor shall be given a period not exceeding 90 days to prepare a revised disclosure statement and, following such 90 days, may distribute only the revised [UFOC] and no other."
Put another way, as to non-registration states, the Franchisor has 90 days after the end on the fiscal year to do an update, and after that time may only use the updated document. For example, if X Franchisor has a 12/31 fiscal year, it must update within 90 days after 12/31 and cannot use non-updated documents after that 90 days.
Therefore, a UFOC should not be used in any non-registration state more than 90 days after the end of the Franchisor's fiscal year and I'd recommend that Franchise.com program its system accordingly.
Note also, that Franchisors sometimes change fiscal years mid-year and, if that should happen, we'd recommend that you chat with us at the time for appropriate guidance.
Registration States
Here, the situation initially seems to be equally easy to resolve, but a deeper look reveals some hidden issues:
First of all, registration states typically advise the Franchisor, at the time the registration is declared effective, of an expiration date. Sometimes that expiration date is related to the Franchisor's fiscal year (as in California - 110 days after the end of the fiscal year) and sometimes it's a date unrelated to the fiscal year (as in Maryland - 12 months after the date the registration is declared effective - so that a Franchisor who has a 12/31 fiscal year may have filed in June, 2002, become effective in August, 2002, and will expire in Maryland in August, 2003, long after their fiscal year anniversary.)
But, in each case, the Franchisor will know the expiration date for each state and should be able to supply that information to you, allowing you to program your system accordingly.
Now, here's the interesting wrinkle: In conversations with the FTC, I'm told (and agree) that the FTC 90 day requirement supersedes any longer period available for updating under state law.
So, let's consider the situation in a registration state such as California, as an example. California law says that you must renew (and update your documents) no later than 110 days after the end of your fiscal year. The FTC Rule says that you just update within 90 days. So ? which rule applies? Not surprisingly, the FTC says that the FTC 90 day requirement applies, even in California (or Maryland, or New York or any other registration state), notwithstanding the longer period available for updating under the applicable state rule.,
Therefore, if a Franchisor wanted to distribute its "old" (FY 2001) UFOC to California prospects until approximately April 20, 2003, the FTC would say that it could not do so after approximately March 31, 2003, (90 days after the end of the 2002 fiscal year) without having prepared an updated UFOC. [At the same time, my FTC contacts tell me that in the absence of fraud, and assuming the Franchisor was relying in good faith on the California expiration date, any chances of FTC enforcement action in this situation would be very low. On the other hand, the fact that the FTC might not take action does not preclude a Franchisee from suing under general state "little FTC Acts."]
So here's where that leaves us: In any registration state, the UFOC must be updated as of the earlier of (a) 90 days after the end of the Franchisor's fiscal year or (b) the expiration date as specified in the various states orders of effectiveness. Therefore, I recommend that for registration states you program your system accordingly and require Franchisors to give you those two dates (their attorneys will have the state dates and they will vary from state to state), the best evidence of the state expiration dates being copies of the orders of effectiveness, although you may choose to rely on a simple form.
Now not everyone in franchising understands this intersection of the FTC Rule and state requyirements and I'm sure that there are Franchisors (and some attorneys) out there who think that if their expiration date in Maryland is August 15, then even though they're a 12/31 fiscal year company, they can continue to use a non-updated UFOC up to August 15 for Maryland prospects. Put simply, they're wrong and if they have any questions they can chat with the FTC, who will set them straight.
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