UFDD/UFOC Tips
Navigating the UFDD/UFOC
Open Franchise Foundation
August 2008
OpenFran suggests that you examine the complete UFOC/UFDD guidelines document published by the Department of Corporations from the State of California - it contains a great deal of information, colloquialism definitions, and explanations regarding the document structure that you will find on CALEASI and, by reference, within the OpenFran archive.
WHAT IS A UFOC/UFDD?
On January 23, 2007, after a twelve year regulatory review, the Federal Trade Commission (“FTC”) announced that it had adopted a final amended Franchise Rule, with a Statement of Basis and Purpose and Regulatory Analysis (the “2007 Franchise Rule”). The 2007 Franchise Rule represents the first time the FTC has amended its Franchise Rule (the “Original Franchise Rule”) since 1978, when it was originally promulgated.
Among other things, the 2007 Franchise Rule adopts new requirements for franchisors preparing franchise disclosure documents, also called “offering circulars.” Since December 30, 1993, the FTC has allowed franchisors to prepare and distribute disclosure documents under one of two disclosure formats: (1) the FTC’s Original Franchise Rule; or (2) the Uniform Franchise Offering Circular (“UFOC”) Guidelines, adopted on April 23, 1993 by the North American Administrators Association, Inc. (“NASAA”). After NASAA adopted the UFOC Guidelines, fifteen states (“Registration States”) required franchisors to follow that disclosure format to comply with state franchise laws. As a practical matter, most franchisors have chosen to prepare their disclosure documents under the UFOC Guidelines, even in states where that format is not specifically required.
The FTC’s 2007 Franchise Rule adopts disclosure requirements that closely track the UFOC Guidelines. In some instances, however, the 2007 Franchise Rule omits or streamlines UFOC Guideline disclosure requirements, such as broker disclosures, cover page risk factors, and detailed computer requirements. In addition, the 2007 Franchise Rule incorporates new
disclosure requirements not found in the UFOC Guidelines, including disclosures related to a franchisor’s parent, franchisor initiated litigation, confidentiality clauses and the existence of trademark-specific franchisee associations. The 2007 Franchise Rule also substantially revised the UFOC Guideline disclosure of statistical information on franchisees and outlets (Item 20), adopting the approach suggested by NASAA in its comment to the FTC’s Notice of Proposed Rulemaking.
In light of the similarities between the 2007 Franchise Rule and the UFOC Guidelines, and the FTC’s lengthy and comprehensive regulatory review that preceded its adoption of the 2007 Franchise Rule, NASAA intends at this time to adopt the disclosure requirements under the 2007 Franchise Rule as a successor to the UFOC Guidelines, with minimal additional requirements, the most significant being a state risk factor cover page.
The FTC’s 2007 Franchise Rule allows franchisors to choose to follow the new disclosure format on July 1, 2007, and some franchisors may seek to utilize that disclosure format in the Registration States as soon as possible. Consequently, until NASAA adopts a replacement for the UFOC Guidelines, NASAA recommends that, as of July 1, 2007, Registration States permit franchisors to file in those states franchise disclosure documents prepared under the 2007 Franchise Rule, in accordance with the Instructions set forth below. Franchisors may continue to file and use in the Registration States franchise disclosure documents prepared under the UFOC Guidelines until July 1, 2008.
In order to register a franchise in the Registration States, franchisors must continue to follow the Instructions provided under the UFOC Guidelines for filing franchise registration applications, and must continue to file the following application documents, other than the disclosure document, in the format required under the UFOC Guidelines. You will notice that many of the document title found on CALEASI and OpenFran are similar to the below:
A. Uniform Franchise Registration Application Page;
B. Supplemental Information page(s);
C. Certification page;
D. Uniform Consent to Service of Process;
E. Sales Agent Disclosure Form;
F. If the applicant is a corporation or partnership or limited liability company, an
authorizing resolution if the application is verified by a person other than
applicant's officer or general partner;
G. Uniform Franchise Offering Circular, or
Uniform Franchise Disclosure Document;
H. Application Fee (varies by state);
I. Auditor's consent (or a photocopy of the consent) to the use of the latest audited
financial statements in the offering circular; and
J. Advertising or promotional materials, if required.
We hope that this document was helpful to you and we welcome your input on how to improve the explanation of the UFDD/UFOC. Please contact us with any comments or questions at info@openfran.org.