What information must a franchisor provide to a prospective franchisee?

In very 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 that it is true and accurate, is helpful and reduces the risks of a dispute arising subsequently that a franchisor had misled a franchisee in order to encourage them to enter into a franchise agreement.

Franchisors who are members of the British Franchise Association (“bfa”) 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 financial position of the franchisor, the people involved in the franchisor company, the franchise proposition, details of its franchisees, financial projections, the franchise agreement and other contractual documentation. For further information as to precisely what has to be provided reference should be made to the Guide.