Top Management Story

Writen by Lance Winslow

There are so many naturally occurring business situations, which cannot be properly fit into the UFOC or Uniform Franchise Offering Circular for proper and legal disclosure to new franchise buyers as per the onerous rules and regulations in the Franchising Industry. You would think that a 250-page franchise agreement would be all encompassing, but it is not always. Often there are times when the rules and regulations do not consider other than straight black and white franchise sales. Such as transfers, trades, vendor deals, family members, original franchisee discounts to get the ball rolling.

Recently, I was discussing all this with an individual who unfortunately had their franchise fail. His comment was that in the UFOC it showed a lawsuit with a franchisee and then that franchisee's name was not listed in the exhibit section. The franchisee in the lawsuit was apparently terminated, which makes sense right? And then that franchisee was run by a family member of the Franchisor; Why you ask? Well simple, the Franchisor did not wish to have a closed store or brand name loss and the family member wanted to run the outlet, makes sense right?

Sure, but consider the problems now with the franchise documentation and proper disclosure. You must understand that Franchisors are required by law to make changes as they occur in the franchise documents. If the founder's family member took over an abandoned franchise so the franchisor would not lose brand name due to an empty failed store in the beginning then there is nothing wrong with that business decision to do that. It is not deception to change the data, it is the law to upgrade it every 6-months.

The lawsuit is disclosed as is required by law. Sometimes when a transfer is made the new store owner changes the list of franchise owners. In the case of a terminated franchisee for cause or abandoned franchisee this would trigger a change in the list of franchisees in the back regardless. That is a very weak case unless the franchisee complaining about it bought their franchise prior to the date when the change was made, but never the less it was listed in the section of litigation, which is proper.

So, often onerous rules and regulations miss things like this because the people making the rules assume every franchise deal is cut and dry. It is not and to that point these types of issues should be considered. What is the answer to all this you ask? Well, reduce all the rules require no disclosure and thus no problem is created you see? Consider this in 2006.