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USA: new franchise guidelines criticised

According to media reports, many people believe that the revised US franchise guidelines, which will come into force on July 1, 2008, do not go far enough. The aim of these revised guidelines is to make it easier for potential franchisees to weigh up the risks of joining a franchise by making it obligatory for franchisors to reveal more information abut the company before an agreement is signed. However, this will not include information about the financial situation of the franchise business.

“It is a catastrophe that franchise companies are not obliged to disclose their financial data to those interested in joining the franchise,” Bob Purvin, Board Chairman of the franchisee organisation, American Association of Franchisees & Dealers, commented recently in an interview. “The first questions that potential franchisees must ask themselves is ‘How much will I earn?’ and ‘If the franchisor lies about the situation can I take legal steps against him/her’. These questions will not be answered by the new franchise guidelines.”

According to the new guidelines, franchise companies must inform potential franchisees about the following subjects: court cases between franchisors and existing franchisees, contact details of previous franchisees, franchise turnover, the disadvantages of opening up a branch in a region without exclusive rights, confidentiality clauses in the franchise agreement as well as contact details of independent franchisee organisations. The franchise guidelines regulates the sale of franchise licences. The Federal Trade Commission (FTC), an independent US government body for consumer protection and free competition, has been working on revising the franchise guidelines since 1995.

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