(This was the sixth post in a series of 11 posts on making compliant franchise sales.)
You must disclose a prospect with the franchisor's FDD a minimum amount of time before the prospect signs any binding agreement with, or pays any amount to, the franchisor or any affiliate.
If you are using a paper FDD or an FDD on a CD, disclosure occurs on the day you hand-deliver or otherwise actually deliver the FDD to the prospect, or 3 days after you mail the FDD to the prospect by first class mail. If you are disclosing electronically, disclosure occurs on the day you email the FDD to the prospect, or give the prospect directions for accessing the FDD on the Internet. The date on the signed and dated receipt received from the prospect for the FDD should correspond to the date disclosure occurs.
In most states, the minimum disclosure time is 14 calendar days before the prospect signs or pays. When counting calendar days, you may not count the day the FDD is delivered or the day the prospect signs or pays.
Some state laws require different minimum disclosure times (see Appendix A). If the Iowa, Maine, Maryland, Nebraska, New York, Oklahoma or Rhode Island law applies, you may be required to disclose the prospect at your first "personal meeting" with the prospect.
A "personal meeting" is a face-to-face meeting in a semi-private setting such as a restaurant or a lounge area at a tradeshow, or in a private setting such as a hotel conference room or your office. If the Connecticut, Maryland, Michigan, New York, Oklahoma, Rhode Island, Texas, Utah or Washington law applies, or if you are exempt as a large franchisor in California, you may be required to disclose the prospect at least 10 business days before the prospect signs or pays.
When counting business days, you may not count the day the FDD is delivered, the day the prospect signs or pays, Saturdays, Sundays, or most federal or state holidays.
Some of the state laws requiring different minimum disclosure times may be changed, so you should check with the franchisor's lawyer or compliance manager about when any changes might take effect.
Until all of the state laws are changed, however, your franchisor may require you to disclose all prospects at their first personal meetings and at least 10 business days before they sign or pay, just to be safe in case any of the laws apply.
(This is the 6th part of 11 series on franchise selling compliance.
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Proper disclosure is all about knowing when, where and the timing requirements.
It's easier said then done. And franchisors make mistakes all the time.
I know that if I didn't have a franchise agreement compliance checklist to use before countersigning franchise agreements we wouldn't have caught timing errors.