Principles of corporate finance

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Chapter 4

What is the function of the FTC's Trade Regulation Rule?

- To make sure that franchisers provide detailed and accurate information about the operations of a business to the franchisee before engaging in any type of contract. The purpose is to assist the potential franchisee's investigation of the franchise deal and provide consistency of the the franchiser's disclosure statements.Outline the rights the Trade Regulation Rule gives all prospective franchisees.

The Trade RegulationRule gives the franchisees the right to receive a sample franchise contract, audited financial statements for three years, and the following information:

Information identifying the franchiser and its affiliates and describing their business experience and the franchises being soldInformation identifying and describing the business experience of each of the franchise's officers, directors, and management personnel responsible for the franchise program.
A description of the lawsuits in which the franchiser and its officers, directors, an managers have been involved in the past 10 years.
Information about any bankruptcies in which the franchiser and its officers, directors, andmanagers have been involved.
Information about the initial franchise fee and oher payments required to obtain the franchise, including the intended use of the fees.
A description of any other continuing payments franchisees are required to make after start-up, including royalties, service fees, training fees, lease payments, advertising charges, and others.
A detailed description of thepayments a franchisee must make to fulfill the initial investment requirement and how and to whom they are made. The categories covered are initial franchise fee, equipment, opening inventory, initial advertising fee, signs, training, real estate, working capital, legal, accounting, and utilities.
Information about quality restrictions on goods and services used in the franchise and where they may bepurchased, including restricted purchases from the franchises. Franchisers often require franchisees to purchase goods, services, and supplies only from approved suppliers (including the franchiser).
A cross-reference chart that shows where the deescription of the franchisee's obligations under he contract is contained in the text of the UFOC.
A description of any financial assistance availablefrom the franchiser in the purchase of the franchise.
A description of all the obligations the franchiser must fulfill in helping a franchisee prepare to open and operate a unit, with information covering location selection methods and the trainingj program provided to franchisees. This typically is the longest section of the UFOC.
A description of any territorial protection that will be grantedto the franchise and a statement as to whether the franchiser mau locate a company-owned store or other outlet in the terrytory. Because market saturation and territorial encroachment have become controversial issues in franchising, prospective franchisees should pay special attention to this section.
All relevanyt information about the franchiser's trademarks, service marks, trade names, logos,and commercial symbols, including where they are registered.
Similar information on any patents and copyrights the franchiser owns and the right to these that are transferred to franchisees.
A description of the extent to which franchisees must participate personally in the operation of the franchise.
A description of any restrictions on the goods or services franchises are permitted to selland with whom franchisees may deal.
A description of the conditions under which the franchise may be repurchased or refused renewal by the franchiser, transferred to a third party by the franchisee, and terminated or modified by either party. This section also spells out the process for resolving disputes between franchisees and franchiser
A description of the involvement of celebrities or...
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