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What information must a franchisor provide to a prospective franchisee?
John Pratt writes:
In many countries, franchisors are required to provide detailed information to prospective franchisees - indeed, in America the detail that has to be provided is eye watering and usually amounts to over 200 pages of disclosures.
In the UK there is no legal requirement on franchisors to disclose information to franchisees, although generally the provision of information, provided it’s true and accurate, is helpful and reduces the risks of a dispute arising.
Franchisors who are members of the British Franchise Association are, however, required to provide basic disclosure information to prospective franchisees because franchisors have to comply with the bfa’s code of ethics, which requires franchisors to provide ‘full and accurate written disclosure of all information material to the franchise relationship within a reasonable time prior to executing the franchise agreement’.
The bfa has provided guidance as to what should be disclosed to prospective franchisees in its guide to the code of ethics.
In summary, franchisors are required to inform a prospective franchisee concerning the business and its financial position, the people involved in the franchisor company, the franchise proposition, details of its franchisees, financial projections, the franchise agreement and other contractual documentation.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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