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Federal Deception Law: 16 C.F.R. § 436.1. Definitions

Unless stated otherwise, the following definitions apply throughout part 436:

(a) Action includes complaints, cross claims, counterclaims, and third-party complaints in a judicial action or proceeding, and their equivalents in an administrative action or arbitration.

(b) Affiliate means an entity controlled by, controlling, or under common control with, another entity.

Federal Deception Law: 16 C.F.R. § 436.3. Cover page

Begin the disclosure document with a cover page, in the order and form as follows:

(a) The title “FRANCHISE DISCLOSURE DOCUMENT” in capital letters and bold type.

(b) The franchisor’s name, type of business organization, principal business address, telephone number, and, if applicable, email address and primary home page address.

(c) A sample of the primary business trademark that the franchisee will use in its business.

Federal Deception Law: 16 C.F.R. § 436.4. Table of contents

Include the following table of contents. State the page where each disclosure Item begins. List all exhibits by letter, as shown in the following example.

Table of Contents

1. The Franchisor and any Parents, Predecessors, and Affiliates

2. Business Experience

3. Litigation

4. Bankruptcy

5. Initial Fees

6. Other Fees

7. Estimated Initial Investment

8. Restrictions on Sources of Products and Services

9. Franchisee’s Obligations

10. Financing

11. Franchisor’s Assistance, Advertising, Computer Systems, and Training

Federal Deception Law: 16 C.F.R. § 436.5. Disclosure items

(a) Item 1: The Franchisor, and any Parents, Predecessors, and Affiliates.

Disclose:

(1) The name and principal business address of the franchisor; any parents; and any affiliates that offer franchises in any line of business or provide products or services to the franchisees of the franchisor.

Federal Deception Law: 16 C.F.R. § 436.6. Instructions for preparing disclosure documents

(a) It is an unfair or deceptive act or practice in violation of Section 5 of the FTC Act for any franchisor to fail to include the information and follow the instructions for preparing disclosure documents set forth in Subpart C (basic disclosure requirements) and Subpart D (updating requirements) of part 436. The Commission will enforce this provision according to the standards of liability under Sections 5, 13(b), and 19 of the FTC Act.

Federal Deception Law: 16 C.F.R. § 436.7. Instructions for updating disclosures

(a) All information in the disclosure document shall be current as of the close of the franchisor’s most recent fiscal year. After the close of the fiscal year, the franchisor shall, within 120 days, prepare a revised disclosure document, after which a franchise seller may distribute only the revised document and no other disclosure document.

Federal Deception Law: 16 C.F.R. § 436.8. Exemptions

(a) The provisions of part 436 shall not apply if the franchisor can establish any of the following:

(1) The total of the required payments, or commitments to make a required payment, to the franchisor or an affiliate that are made any time from before to within six months after commencing operation of the franchisee’s business is less than $615.

(2) The franchise relationship is a fractional franchise.

Federal Deception Law: 16 C.F.R. § 436.9. Additional prohibitions

It is an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act for any franchise seller covered by part 436 to:

(a) Make any claim or representation, orally, visually, or in writing, that contradicts the information required to be disclosed by this part.

(b) Misrepresent that any person:

(1) Purchased a franchise from the franchisor or operated a franchise of the type offered by the franchisor.

Federal Deception Law: 16 C.F.R. § 436.10. Other laws and rules

(a) The Commission does not approve or express any opinion on the legality of any matter a franchisor may be required to disclose by part 436. Further, franchisors may have additional obligations to impart material information to prospective franchisees outside of the disclosure document under Section 5 of the Federal Trade Commission Act. The Commission intends to enforce all applicable statutes and rules.

Federal Deception Law: Listing of Provisions, Source, and Authority

16 C.F.R.

§ 437.1 Definitions.

§ 437.2 The obligation to furnish written documents.

§ 437.3 The disclosure document.

§ 437.4 Earnings claims.

§ 437.5 Sales conducted in Spanish or other languages besides English.

§ 437.6 Other prohibited practices.

§ 437.7 Record retention.

§ 437.8 Franchise exemption.

§ 437.9 Outstanding orders; preemption.

§ 437.10 Severability.

Appendix A to Part 437—Disclosure of Important Information About Business Opportunity

Federal Deception Law: 16 C.F.R. § 437.1. Definitions

The following definitions shall apply throughout this part:

(a) Action means a criminal information, indictment, or proceeding; a civil complaint, cross claim, counterclaim, or third party complaint in a judicial action or proceeding; arbitration; or any governmental administrative proceeding, including, but not limited to, an action to obtain or issue a cease and desist order, an assurance of voluntary compliance, and an assurance of discontinuance.

Federal Deception Law: 16 C.F.R. § 437.2. The obligation to furnish written documents

In connection with the offer for sale, sale, or promotion of a business opportunity, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act (“FTC Act”) for any seller to fail to furnish a prospective purchaser with the material information required by §§437.3(a) and 437.4(a) of this part in writing at least seven calendar days before the earlier of the time that the prospective purchaser:

(a) Signs any contract in connection with the business opportunity sale; or

Federal Deception Law: 16 C.F.R. § 437.4. Earnings claims

In connection with the offer for sale, sale, or promotion of a business opportunity, it is a violation of this Rule and an unfair or deceptive act or practice in violation of Section 5 of the FTC Act, for the seller to:

(a) Make any earnings claim to a prospective purchaser, unless the seller:

(1) Has a reasonable basis for its claim at the time the claim is made;

Federal Deception Law: 16 C.F.R. § 437.6. Other prohibited practices

In connection with the offer for sale, sale, or promotion of a business opportunity, it is a violation of this part and an unfair or deceptive act or practice in violation of Section 5 of the FTC Act for any seller, directly or indirectly through a third party, to:

(a) Disclaim, or require a prospective purchaser to waive reliance on, any statement made in any document or attachment that is required or permitted to be disclosed under this Rule;

Federal Deception Law: 16 C.F.R. § 437.7. Record retention

To prevent the unfair and deceptive acts or practices specified in this Rule, business opportunity sellers and their principals must prepare, retain, and make available for inspection by Commission officials copies of the following documents for a period of three years:

(a) Each materially different version of all documents required by this Rule;

(b) Each purchaser’s disclosure receipt;

(c) Each executed written contract with a purchaser; and