An Offering Circular is a legal disclosure document provided by a franchisor to prospective franchisees before any sale or agreement is made. In franchising, the offering circular contains detailed information about the franchise system, fees, risks, and the franchisor’s financial and operational background. It ensures transparency and compliance with franchise disclosure laws.
An offering circular is an official document that a franchisor must provide to a potential franchisee prior to signing a Franchise Agreement or accepting any payment. It discloses essential facts about the franchise opportunity, including the franchisor’s history, litigation, bankruptcy records, fees, obligations, territory rights, and financial performance representations. The goal is to give potential franchisees a complete and honest overview of the business they are considering investing in.
Historically, the term “offering circular” referred to the disclosure document required under the Federal Trade Commission’s (FTC) early franchise rules. In 2008, the FTC replaced the “Uniform Franchise Offering Circular” (UFOC) with the current Franchise Disclosure Document (FDD), which now serves the same purpose but with more standardized format and requirements. However, some states and older franchise materials still reference the term “offering circular.” Regardless of terminology, the purpose remains the same—to ensure full and fair disclosure to prospective franchisees before they make a financial commitment.
Also see “Franchise Disclosure Document.”
| Section | Description |
|---|---|
| Franchisor Information | Background and history of the franchisor and any parent or affiliate companies. |
| Litigation and Bankruptcy | Details of any past or pending legal actions or bankruptcies involving the franchisor or its officers. |
| Fees and Payments | Initial franchise fees, royalties, marketing fund contributions, and other financial obligations. |
| Franchisee Obligations | Operational responsibilities, required purchases, and training commitments. |
| Financial Performance Representations | Optional but valuable information about average sales or profits of existing franchisees. |
| Financial Statements | Audited financial reports of the franchisor, required annually to ensure financial transparency. |
The offering circular dates back to the early regulation of the franchise industry in the 1970s when both the Federal Trade Commission (FTC) and state governments recognized the need to protect franchise investors from deceptive practices. The original Uniform Franchise Offering Circular (UFOC) was created in 1979 as a standardized format for franchise disclosure. In 2008, the FTC replaced the UFOC with the Franchise Disclosure Document (FDD), aligning disclosure standards nationwide. Although “offering circular” is now an outdated term under federal law, it remains historically significant and is still used in casual or legacy references to the disclosure process.
Also See: The Educated Franchisee, 3rd Edition
| Feature | Offering Circular (UFOC) | Franchise Disclosure Document (FDD) |
|---|---|---|
| Regulatory Basis | Based on the Uniform Franchise Offering Circular Guidelines (pre-2008) | Based on the Federal Trade Commission’s Franchise Rule (post-2008) |
| Number of Items | 23 standard items | Still 23 items, but with expanded definitions and stricter disclosure rules |
| Format | Allowed state variations in presentation | Standardized national format for uniform compliance |
| Purpose | Disclosure to protect prospective franchisees | Same purpose, with improved clarity and accuracy |
1. Is the offering circular the same as the FDD?
Yes, the FDD replaced the offering circular in 2008, but both serve the same disclosure purpose.
2. When must an offering circular be provided?
It must be provided at least 14 calendar days before signing a franchise agreement or paying any money.
3. Who prepares the offering circular?
The franchisor, often with assistance from franchise attorneys and accountants, prepares the document.
4. Why is the offering circular important?
It helps potential franchisees make informed investment decisions by revealing key financial and operational details.
5. Can a franchisee negotiate terms after reviewing it?
Yes, but negotiations are limited; most terms are standardized across the franchise system.
'Before signing the Franchise Agreement, the franchisor must provide an offering circular detailing all relevant fees and risks.'
'The prospective franchisee reviewed the offering circular carefully to understand the franchisor’s financial performance and obligations.'
'Although the term offering circular has been replaced by FDD, many in the industry still use it informally when referring to franchise disclosure documents.'
An offering circular is a critical disclosure document that provides transparency and protects both franchisors and franchisees during the franchise sales process. Although the term has been largely replaced by “Franchise Disclosure Document” under current law, it remains an important part of franchise history and terminology. Whether referred to as an FDD or offering circular, its purpose is to ensure that every franchise investment begins with full and fair disclosure.
