On May 19, 2019, the North American Securities Administrators Association (NASAA) adopted new state cover sheets and state effective dates page for franchise disclosure documents. Beginning on January 1, 2020, the FDD must now include three specific cover sheets prepared in accordance with the instructions and samples promulgated by NASAA.
All of these new pages are required to appear directly behind the cover page of the FDD, before the main body of the FDD containing Items 1-22. The first of these new sheets, entitled “How to Use This Franchise Disclosure Document”, is a table that includes a variety of general questions a franchisee may have. The table indicates under which FDD Item the information can be found. For example, one of the listed questions is “Is the franchise system stable, growing, or shrinking?”, and the table refers the reader to Item 20 for the answer.
The second new cover sheet is entitled “What You Need to Know About Franchising Generally.” This page defines certain common franchise terms of art, such as “supplier restrictions”, “operating restrictions,” and “renewal.” The final new page, titled “Special Risks to Consider About This Franchise”, and it appears to operate in the same manner as the prior state-specific disclosure page. For example, on this page, a franchisor must list whether the dispute resolution is out-of-state, whether another state’s law governs the franchise agreement, and any other state-specific risks that are required to be disclosed. Finally, franchisors must continue to include a page listing the effective dates of the states in which they operate.
Although none of these changes are drastic, franchisors will need to ensure they add these new pages in order to ensure they have a compliant FDD.