Are Franchises Regulated by the Government?

Franchises are regulated by the Federal Trade Commission (FTC). All franchisors operating in the United States must abide by the FTC's Franchise Rule, which is a federal regulation that requires franchisors

to prepare an extensive disclosure document called the Uniform Franchise Offering Circular (UFOC) and to give a copy to any prospective franchise purchaser before he or she buys a franchise.

The UFOC consists of 23 different categories about the franchise such as required fees, basic investment, bankruptcy and litigation history (including any felony convictions and civil judgments), how long the franchise will be in effect, a financial statement of the franchisor and earnings claims (if the company makes them) and the franchisor's executives, as well as their past experience. The FTC publishes A Consumer Guide to Buying a Franchise, which you can download from their site.

Fourteen states require franchise companies to file or register their franchise offerings with a state agency. These include: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. These states, as well as Oregon, also have disclosure regulations similar to those of the FTC.