In September 2016 the North American Securities Administrators Association Inc (NASAA) issued a notice of request seeking public comment on a proposed financial performance representations (FPR) commentary regarding franchise disclosures.(1) The Federal Trade Commission's (FTC) Franchise Rule permits a franchisor to make a financial performance representation in Item 19 of a franchise disclosure document as long as "the franchisor [has] a reasonable basis and written substantiation for the representation at the time the representation is made".(2) What constitutes a reasonable basis and what information is needed to substantiate an FPR is not specifically defined. According to NASAA's notice of request, the proposed FPR commentary seeks to address various questions raised by franchisor representatives and state franchise examiners regarding FPRs. NASAA previously sought comments on the proposed FPR commentary in October 2015.

NASAA's proposed FPR commentary includes answers to frequently asked questions about how franchisors can make and substantiate FPRs in a franchise disclosure document. Topics addressed in NASAA's proposed FPR commentary include:

  • the presentation of data based on, or involving, company-owned outlets versus franchised outlets;
  • disclosures of gross sales, gross profit or net profit;
  • use of subsets (eg, based on performance, geography or other criteria);
  • disclosures of 'average' and 'median' numbers;
  • use of forecasts and projections; and
  • use of disclaimers.

NASAA, an association of state securities administrators, is influential in the franchising world. The association proposes model acts, regulations, statements of policies and other initiatives to assist its member jurisdictions to administer and enforce securities and franchise laws. After the FTC enacted the current FTC Franchise Rule in 2007, NASAA issued the Franchise Registration and Disclosure Guidelines. All 15 US states with pre-sale franchise disclosure laws have adopted the NASAA guidelines. Further, the disclosure requirements under the FTC Franchise Rule are largely based on prior guidelines issued by NASAA. Accordingly, any FPR commentary issued by NASAA will carry great weight in US franchising.

Public comments regarding NASAA's proposed FPR commentary were due to NASAA by October 13 2016. NASAA intends to post the comments received on its website in due course.

For further information on this topic please contact Jess A Dance at Gardere by telephone (+1 720 437 2011) or email ([email protected]). The Gardere website can be accessed at


(2) 16 C.F.R. § 436.5(s)(3).