Franchising & Licensing, 4th Edition

CHAPTER 5The Regulation of Franchising

Introduction

The offer and sale of franchises are regulated under federal and state law. Federal franchise law is embodied principally in a regulation promulgated by the Federal Trade Commission (FTC) and commonly referred to by those involved in franchising as the “FTC Rule” (codified at 16 CFR §437). The FTC Rule, which became law in 1979 and was formally titled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures,” requires franchisors to make certain disclosures to prospective franchisees in the United States and its territories. The FTC Rule applies to product-and business-format franchises that have three elements:

The franchisee sells goods or services ...