In September 2016 the North American Securities Administrators Association Inc (NASAA) issued a notice of request seeking public comment on a proposed financial performance representations (FPR) commentary regarding franchise disclosures.(1) The Federal Trade Commission’s (FTC) Franchise Rule permits a franchisor to make a financial performance representation in Item 19 of a franchise disclosure document as long as “the franchisor [has] a reasonable basis and written substantiation for the representation at the time the representation is made”.(2) What constitutes a reasonable basis and what information is needed to substantiate an FPR is not specifically defined. According to NASAA’s notice of request, the proposed FPR commentary seeks to address various questions raised by franchisor representatives and state franchise examiners regarding FPRs. NASAA previously sought comments on the proposed FPR commentary in October 2015.
NASAA’s proposed FPR commentary includes answers to frequently asked questions about how franchisors can make and substantiate FPRs in a franchise disclosure document. Topics addressed in NASAA’s proposed FPR commentary include: