Execution of Agreements
The franchise sales process does not end until final agreements are executed by the parties. When you receive back the final agreements signed by the prospect, they are not executed. The franchisor must countersign the agreements for them to be executed. Only when the franchisor countersigns the agreements does the franchise sale occur and the prospect become a franchisee.
If a "material change" occurs, or if a state registration expires, before the franchisor countersigns the agreements, obligations to re-disclose the prospect and re-observe all waiting periods may be triggered. So, if the franchisor wants the prospect as a franchisee, you should arrange for the franchisor to countersign the agreements as soon as possible.
Post-Sale Obligations
The franchisor must retain a copy of each materially different version of its FDD for 3 years after the close of the fiscal year when it was last used. Some states require longer retention periods.
If the prospect signs a franchise agreement, during the entire life of the franchise and for several years beyond, the franchisor should retain copies of all communications from and to the prospect during the franchise sales process, and copies of all signed FDD receipts and all executed final agreements.
By law, signed FDD receipts must be retained at least 3 years, or even longer for sales in some states.
Even if the prospect does not sign a franchise agreement, the franchisor should retain copies of all signed FDD receipts, and of all communications from and to the prospect during the franchise sales process, for at least 3 years, or even longer for offers in some states.
(This was the last post in a series of 11 posts on making compliant franchise sales. )
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Having a great records and email retention policy is very important for a franchisor to have securely in place.
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