Franchise Disclosure Documents (FDD)

One of the most difficult things to impress upon start-up franchisors is the amount of time, resources, and manpower it takes to establish a uniform system and, equally important, to monitor compliance with that system.

To protect the integrity of a brand concept and the goodwill it wishes to establish, the franchisor must devote the manpower necessary to investigate and monitor compliance with all aspects and provisions set forth in the franchise agreement. Established franchisors understand the cost and realize they must protect their brand's goodwill from franchisees who cut corners, run poor operations, and endanger the integrity and uniformity franchisors seek to establish.

Some franchisee activities are easier to monitor than others...

2009 continued to be a year in which courts found that by providing earnings information in an Item 19 franchisors were able to prevail in cases in which the franchisee asserted claims for fraud surrounding alleged misleading earnings claims. Due to the length of time it takes a case to arise and percolate through the court system, each of these cases involves franchisees who received disclosure under the prior UFOC Guidelines. However, as the cases all relate to a franchisee's ability to rely on the earnings information there is no reason to believe the result would differ under the FDD format.

In Rocky Mountain Chocolate Factory, Inc. v. Anderson, et al., the franchisees alleged in a counterclaim that the Item 19 earnings claim in the UFOC was misleading in that it only provided gross sales information and the notes stated that the franchisor did not have access to, or knowledge of franchisees' cost information...

Consumers have an infinite number of ways and places to talk about your brand. Social media platforms such as Facebook, LinkedIn, Twitter, online blogs, podcasts and YouTube are fundamentally changing the way we work and interact with each other, with an increasing blurring of business, commercial, social and personal communications. As a result, these social media platforms can provide beneficial (and inexpensive) ways for franchisors and franchisees to market and promote their products and services.
While social media can provide great brand promotion opportunities, it also can be very dangerous. Social media is often viewed as a fast and informal means of communication, and given the fast-paced nature of social media, one can easily get caught up in the rapid back-and-forth responses inherent in the social media environment...

This is Part One of a three part series presented by Haynes and Boone, LLP exploring franchise sales growth in 2010.

2009 was a difficult year for most franchisors, but 2010 is a new year and many franchisors are again looking to grow their businesses. Developing and implementing a "non-traditional" franchise program is one of several key growth vehicles that we will explore in our three part series.

What makes a franchise offering "non-traditional"? The easy answer is that it differs from your standard prototype offering, but there are degrees of differentiation and the "non-traditional" nature of the offering can be derived from: (1) the location (i.e., captive customer audience locations such as airports, hotels, motels, casinos, sports arenas, stadiums, convention centers, hospitals, universities and schools, museums, theme parks, aquariums, military and governmental facilities and shopping mall food courts); (2) the operator (i...