Can I use the disclosure document provided to prospective new franchisees for resale transactions?
No. A disclosure document which has been prepared for delivery to a prospective new franchisee will likely require revisions if delivered to a prospective franchisee purchasing an established franchise from an existing franchisee or purchasing a corporately owned and operated outlet. The franchisor will need to ensure that all “material facts” relating to the specific franchise being sold are included in the disclosure document. The level of customization required will depend on the facts and circumstances of the resale transaction. Typically, however, sections in the disclosure document regarding the estimate of costs associated with establishing the franchise require modification. In addition, particularly in the case of a corporate resale, the franchisor must carefully consider what to disclose about the store’s past performance, and how best to do so.