Despite franchising’s great reach in the United States, it wasn’t long ago that this way of doing business had a less-than-stellar reputation. That’s because with so much franchise opportunity came opportunists - those who abused relationships and left investors and customers holding the bag.

During the 1970s, 14 states - California, Hawaii, Illinois, Indiana, Maryland. Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia. Washington, and Wisconsin - enacted laws requiring franchise companies to file or register their franchise offerings with a state agency. In 1978, the Federal Trade Commission adopted the FTC Franchise Rule setting out more uniform disclosure requirements. The presale disclosure document is known as the Uniform Franchise Offering Circular (UFOC). The most important part of the UFOC rules is the presale disclosure, which was designed to protect investors by requiring that franchisors provide detailed information about the business to the prospective franchisee before any agreements are signed or fees are taken.

The UFOC contains information from the franchisor regarding its finances, principals, and other franchisees. This disclosure document is intended to help potential franchisees investigate the company they’re buying into. It requires franchisors to put their claims on the record.

In addition to their availability from individual franchisors, these disclosure documents can be obtained from the various states for a modest copying fee. California has established a public website, www.corp.ca.gov, where many of the franchisor disclosure documents can be viewed at no charge.

These restrictions help ensure that the franchisor and franchisee enter into an honest relationship. After all, at the heart of franchising is a business relationship, and if this relationship lacks integrity, the reputation of franchising will suffer. If franchisors don’t adhere to their agreements, their brands and business will suffer. And if prospective franchisees aren’t secure in their agreements, they won’t buy new units and deliver the goods to their customers. And if the customers can’t count on getting their package delivered, finding a clean comfortable hotel room, or repairing their home through a franchised business, they’ll shop elsewhere and the franchising model will sink.

To maintain high standards, the International Franchise Association (IFA) has developed self-regulation programs that apply to its members. These programs are seen as an alternative to onerous legislation and expensive litigation. The system consists of the following:
- A code of ethics
- A streamlined code enforcement mechanism
- The ombudsman program, which is an endorsement of the National Franchise Mediation Program
- New educational programs and comprehensive compliance training programs endorsed by the Federal Trade Commission

The International Franchise Association (IFA) believes that if these programs are utilized, franchisors and franchisees will thrive.