The new act defines a material fact as "any information about the business, operations, capital or control of the franchisor or franchisor's associate, or about the franchise or the franchise system, that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or on the decision to acquire the franchise." Given the broad scope of this definition, franchisors must think carefully about the facts that are likely to be material with respect to each franchise being offered, and make sure that the disclosure document
provided to a prospective franchisee covers all material facts (including any site-specific information about the franchise being offered).
The POS disclosure document
should be concise, set out key information about a product and may include, as appropriate, links or refer to other information.
The seller does not file the FTC business opportunity disclosure document
with the FTC, and the FTC does not approve it.
Both Jarvis and Coleman suggest franchisors prepare a national disclosure document
that meets the disclosure obligations of each of the provinces so that it can be used in any of the provinces requiring disclosure.
The disclosure document
would be a way for consumers to begin to get more information on what they are buying by asking the advisor additional questions or by electronically accessing more information, according to Bartell.
The disclosure document
must also include a certificate that states the following:
The next consideration is documentation - except in a "heads up" investment, where the level of participation in the investment is equal among all investors and no passive investor-promoter relationship is involved, disclosure documents
must be prepared, fully notifying investors of all material risks related to the investment; describing conflicts of interest and related party transactions; setting forth a detailed use of the proceeds of the offering, and describing the tax implications.
For example, a legitimate franchisor will always provide a disclosure document
which should indicate what litigation is pending and a review of those operators who previously ran the franchise facility under consideration.
The franchise disclosure document
is at the heart of franchise compliance.
* Requires the solicitor to deliver to the referred client the investment advisor's Form ADV Part 2 and a separate solicitor's written disclosure document
A requirement of the franchisor is to prepare and make available a comprehensive disclosure document
containing information about the company; details of any previous or pending litigation, and the names of current franchisees who have left the system within the past 36 months.