NASAA Adopts Franchisor Financial Performance Representations Commentary At Its Annual Spring Confer
On May 8, 2017, the North American Securities Administrator's Association ("NASAA") officially adopted the proposed franchise performance representations ("FPR") Commentary that was circulated last fall.
The Federal Trade Commission's Amended Franchise Rule allows franchisors to disclose certain financial information within Item 19 of the franchise disclosure documents ("FDDs") they provide to prospective franchisees.
The FTC Rule permits a franchisor to make these disclosures within Item 19 of the FDD provided that the franchisor has a "reasonable basis" for the representations. However, the FTC Rule does not actually define what "reasonable basis" means.
Fortunately, NASAA's new FPR Commentary provides further clarification for this "reasonable basis" requirement, and many state franchise examiners are expected to rely on the new FPR Commentary going forward in making this determination. This means that existing franchisors should carefully review the FPR Commentary to make sure that they are complying with the FPR Commentary in their Item 19 Disclosures, while businesses seeking to establish a new franchise system should keep the FPR Commentary in mind when drafting their FDDs.
NASAA's FPR Commentary can be found at:
http://www.nasaa.org/wp-content/uploads/2017/05/Financial-Performance-Representation-Commentary.pdf
Please feel free to contact Eric J. Hardeman if you have any questions about the new FPR Commentary or Item 19 Disclosures.
