Franchising has existed as a method of doing business for several decades. Not withstanding, the ancient heritage of franchising, the development of "franchise law" is relatively recent. The first franchising law in modern day was introduced in California in 1971 -- the California Franchise Investment Law, effective January 1, 1971. The state laws established here in the United States generally regulate a franchise in three different fashions:

 (1) they specify the required content and delivery of information to prospective franchisees,

 (2) they require the franchisor to register with state authorities before offering franchises within the specific state, and 

(3) they regulate the franchisor/franchisee business relationship specifically in reference to the establishment, termination, renewal, buy back or modifications of franchises.

The federal law is different. The federal law was established in response to widespread evidence of deception, fraud, and unfair practices which had been ongoing by different franchisors. These practices existed because potential franchisees lacked the ability to obtain essential and reliable information about the business in which they were to invest their money or become a franchisee. This "lack of information" reduced the ability of prospective franchisees to make an informed investment decision or otherwise verify the information supplied by the businesses representatives.

The federal franchise rule, is formerly titled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" [16 CFR #436]. The federal franchise rule attempts to deal with the problems of disclosure and information by requiring franchisors to furnish prospective franchisees with information about the franchisor, the franchise business, and the terms of the franchise agreement. The "rule" became effective on October 21, 1979 requiring disclosure of specific categories of information to all prospective franchisees. In addition, it was stipulated that these disclosures must be made to a prospective franchisee at the earlier of the first personal meeting for the purpose of discussing the sale of a franchise, or 10 business days prior to the execution of any franchise document or the payment of any consideration for the franchise. The disclosure document or Uniform Franchise Offering Circular serves two primary purposes: 

(1) provides the information a prospective franchisee needs to make an intelligent decision concerning that business and

 (2) discourages high pressure sales tactics by providing the prospective franchisee with a "cooling off" period before signing or making any payments to the franchisor.

The rule includes all franchising organizations and is designed to cover all commercial franchising transactions. Any commercial relationship having the following three basic key elements is considered a franchise: 

(1) the franchisor's goods or services are identified by a trademark or logo; 

(2) the franchisor provides significant assistance or exerts control over the franchisee business operations; and 

(3) there is a required payment of $500 or more, payable within six months of the date of commencement of the relationship to the franchisor. 

All businesses involved in the above three financial and operational transactions fall under the care of the franchise rule. This rule, however, will not cover pure product distribution arrangements where the purchaser buys goods or services at bona fide wholesale prices for resale.

The fancy looking documents which you will receive from the franchisors is referred to as a Uniform Franchise Offering Circular or UFOC. This documents contains twenty-three specific items of information designed to give you the basic information you need.

RULE OF THUMB: The UFOC does not contain all the information you will need. 

The information provided by the franchisor is an excellent starting point. But you need to recognize that information is generic for all prospective franchisees and needs considerable research by you as an entrepreneur.