The Franchise Rule

The Franchise Rule defines acts or practices that are unfair or deceptive in the franchise industry in the United States. The Franchise Rule is published by the Federal Trade Commission. The Franchise Rule seeks to facilitate informed decisions and to prevent deception in the sale of franchises by requiring franchisors to provide prospective franchisees with essential information prior to the sale. It does not, however, regulate the substance of the terms that control the relationship between franchisors and franchisees. Also, while The Franchise Rule removed the regulation of the sale of franchises from the purview of the states under the authority of the FTC to regulate interstate commerce, The FTC Franchise Rule does not require franchisors to disclose the unit performance statistics of the franchised system to new buyers of franchises as would be necessary and material under state and federal Securities and Exchange law.

In the United States, the Federal Trade Commission has oversight of franchising, rather than the US Securities and Exchange Commission. The FTC administrates oversight via the FTC Franchise Rule. The FTC announced an update to the franchise Rule on January 23, 2007, becoming effective July 1, 2007.

The most recent version of the FTC Franchise Rule was in 2007, is printed in FR 2007a, pp. 15544–15575.

After July 2008, all franchisors in the United States are to use the Franchise Disclosure Document with potential franchisees.

The Federal Trade Commission began examining practices in franchising in 1970. In 1971 the FTC began a formal rule making proceeding, to possibly develop a regulation requiring disclosure and prohibiting unfair practices in offering and selling franchises. These developments resulted in promulgation of the FTC Franchise Rule in 1979. The FTC enforces the Federal Trade Commission Act ("FTC Act"), which prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.

The FTC Act also empowers the Commission to prescribe rules that define with specificity acts or practices that are unfair or deceptive. One such rule is the Commission's Franchise Rule.

The Commission focuses much of its Franchise Rule enforcement and consumer educational resources on combating business opportunity fraud.

...
Wikipedia