After July 2008, all franchisors in the United States are to use the Franchise Disclosure Document with potential franchisees.
In 1971 the FTC began a formal rule making proceeding, to possibly develop a regulation requiring disclosure and prohibiting unfair practices in offering and selling franchises.
[3] In 2006 the franchise rule was amended, with voluntary adoption of the changes permitted as of July 1, 2007 and mandatory adoption and compliance required as of July 1, 2008[4] The commission focuses much of its franchise rule enforcement and consumer educational resources on combating business opportunity fraud.
The franchise rule requires franchisors to make material disclosures in five categories: In addition, franchisors must have a reasonable basis and substantiation for any financial performance representations (FPRs) made to prospective franchisees, as well as disclose the basis and assumptions underlying any such FPRs in Item 19 of the FDD.
In 2012 the Federal Trade Commission enacted legislation specifically to address the issue of fraudulent non-franchised business opportunities.
[7] In addition to the FTC, fifteen states require pre-sale disclosure in franchise sales.
[8] The franchise rule has the force and effect of law, and it may be enforced through civil penalty actions in federal courts.