As of July 1, the Federal Trade Commission finally conceded unequivocally that franchise systems in the United States may deliver their disclosure documents electronically for FTC purposes. The FTC's new Franchise Rule permits electronic disclosure, and the FTC's frequently asked questions on its new rule states that: "... all franchisors can begin using electronic disclosure on July 1, 2007." Electronic disclosure is permitted regardless of whether the franchise company is still using its UFOC or has converted to the new franchise disclosure document.
As to any state disclosure requirements, these may be preempted by the federal law, E-Sign, as explained in other articles which previously appeared in Franchising World. In any event, many companies have been providing electronic disclosure, with the express approval of every state franchise examiner, for many years. Of course, the state filings themselves must still be in paper, for the time being. Franchise systems may easily obtain permission for electronic disclosure, as part of their registration filings, amendments or renewals. So, the issue is closed, electronic disclosure is here.
How to Make Electronic Disclosure
There are rules about how one must make e-disclosure, and how the UFOC or franchise disclosure document must be drafted to allow for e-disclosure. These rules derive from the new FTC Rule and from the 2003 North American Securities Administrators Association Statement of Policy for Electronic Disclosures, and from a growing number of state statutes and regulations, including, for example, the recent California electronic disclosure amendments to its franchise disclosure law.
Franchise companies must first amend their UFOC or disclosure document to provide near the cover page and in the receipt for possible electronic delivery. The recommendation is that all franchise organizations do so now, even if they are not intending to make use of electronic disclosure at this time. It is easy and inexpensive, and these changes have been accepted by all registration states. Many franchise firms prefer to use personal paper delivery for nearly all prospects, but to supplement paper delivery in appropriate circumstances, thus saving time and money for all concerned. These uses are discussed later in this article.
Under the FTC Rule, state NASAA standards, and the federal E-Sign law, a franchise system may deliver a franchise disclosure document by electronic...