Keeping Promotional Materials Legal - and Effective!
The constant theme of this column is Do It Effectively, Do It Legally, Make a Difference. How a franchisor addresses its sales promotional materials fits this theme. That is, a franchisor's sales promotional materials must effectively capture a candidate's attention and also must comply with the rules.
Several states require franchisors to submit sales promotional materials to the state before the franchisor uses the materials in that state. If you anticipate advertising for prospective franchisees (by media publication, brochures, videos, Internet, or otherwise), you must file a copy of the proposed advertisement or promotional materials with many of the states in which you are registered. The seven states that require franchise sales advertisements to be filed before use include California, Maryland, Minnesota, New York, North Dakota, Rhode Island, and Washington.
All franchise sales advertisements must contain certain information prescribed by law. Most state examiners review the advertisements closely for compliance with these laws, so it is important to know about and comply with various unique state requirements and prohibitions concerning these advertisements. For example, several states require state registration information to be included. All states require the advertisements to be true, accurate, and not misleading, and prohibit statements indicating that the purchase of the franchise is a safe investment. There also are significant restrictions on advertisements that include any projections of income (they must, of course, be consistent with Item 19 of the FDD). Further, an advertisement or marketing brochure may not include any assurance of earnings or profits, and may not contain any information that is inconsistent with your FDD.
You must file all franchise sales literature, brochures, and other promotional materials in the seven registration states noted above before their initial use. This requirement does not generally apply to advertisements in a newspaper or other publication of general, regular, and paid circulation that has had more than two-thirds of its circulation outside the state during the past 12 months; or to radio or television programs originating outside the state that are received in the state. The filing requirement also does not apply to your actual website, although the rules would apply to a PDF or other Internet advertising that you direct to interested parties.
Each state's rules indicate how far in advance advertisements and sales literature must be filed with a state prior to distribution. This timeframe can be as short as three business days or as long as seven. If you have not heard from the state by the end of the review period, you can begin to use the materials. You also will need to include certain disclaimers on any Internet advertising, particularly if you are not registered with all of the states. This disclaimer should include some variation of the following:
This website and the franchise sales information on this site do not constitute an offer to sell a franchise. The offer of a franchise can be made only through the delivery of an FDD. Certain states require that we register the FDD in those states. The communications on this website are not directed by us to the residents of any of those states. Moreover, we will not offer or sell franchises in those states until we have registered the franchise (or obtained an applicable exemption from registration) and delivered the FDD to the prospective franchisee in compliance with applicable law.
Compliance with the sales promotional requirements are not difficult, but the compliance does require the franchisor to be diligent and proactive in its efforts. This compliance also is another example of where the business and legal folks need to collaborate to effectively and legally make a difference.
NOTE: This article is provided for general informational purposes only and should not be considered or construed as legal advice or opinion concerning any specific circumstances or facts. You are encouraged to consult with your own franchise lawyer regarding any specific issue, situation, or legal question you may have.
Brian Schnell is a leader of the Faegre & Benson Franchise Team, which represents more than 200 franchisors in 35 states and 7 countries. He is a past chair of the IFA Supplier Forum; a member of its Legal/Legislative, Awards, and Membership committees; and in 2009 became the first male to receive the IFA Women's Franchise Committee Crystal Compass. Contact him at 612-766-7472 or email@example.com.
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