Franchising Is Not Regulated
Richard Solomon has very interesting opinion piece at Blue Mau Mau,
Franchising Is Not Regulated | Blue MauMau
I have lately come to the conclusion that the expectations of prospective franchise investors concerning the extent to which franchising is regulated – including sales practices regulation and relationship abuse regulation – are simply naïve in the extreme. FOR PURPOSES OF MAKING INVESTMENT DECISIONS, FRANCHISING IS NOT REGULATED AT ALL.What people incorrectly regard as regulation is an information disclosure format that is honored more by abuse than by honest compliant disclosure.
There is no merit review of UFOC content. A few states pretend that they have merit review of UFOC information as part of the registration process in those states. What they deem to be merit review is not. It is cosmetic and superficial, and they would perform a better public service were they not to do it at all.
The same conclusion, if correct, should be made for the Canadian provinces who have franchise disclosure legislation, Alberta, Ontario, New Brunswick, and Prince Edward Island.
Is Richard Solomon correct? Here is the basic problem -there are very few qualified accountants and attorneys that can perform even the basic due diligence given a UFOC. Most accounts will say, well if you can believe these projections, then you will do okay. Most attorneys will tell you that you have a very one sided contract, not in your favour.
Why would you pay for advice like that? You wouldn't, and people don't, but then they lose their investment or worse are defrauded.
How can a prospective franchisee get good quality due diligence from an attorney? One way is to ask for a fairness opinion, how fair is this contract according to the AAFD's standards? The AFFD Fairness Standards are available online.
A complete fairness review is expensive, but the cost could be shared by two or three prospective franchisees.
A fairness review will highlight the possible ways in which that nice friendly franchisor may turn against you down the road. It is important to have a plan that will allow you to address these possible issues during the period that you still have important rights under the Franchise legislation in your state or province.
For more information specific to your own situation, the attorneys at the AAFD's LegaLine can be consulted.
