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Category: Business Law
Satisfied Customers: 184
Experience:  NA
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Looking for a franchise attorney to answer these questions. Is

Customer Question

Looking for a franchise attorney to answer these questions.
Is it legal for a franchisor to disclose a financial proforma
AFTER a franchisee has purchased the franchise?
Can the proforma be changed after it has been showed to franchisees?
Is it legal for a franchisor to purchase lavish gifts-3k-5k for
those that have purchased numerous units?
Submitted: 3 years ago.
Category: Business Law
Expert:  NA replied 3 years ago.

LegalSolutions :

Thank you for your questions: 1. A franchisor must provide the franchise disclosure statement/proforma before the franchisee purchases a franchise. The intent of the statement and proforma, as I'm sure you are aware, is to allow the franchisee to make an informed decision. The information to make that decision must be presented before the decision is made. 2. A franchisor may not show a potential franchisee a proforma on which they're basing their purchase decision and then change that proforma prior to the purchase without informing that prospective franchisee of the change. Franchise requirements vary from state to state, but in general there will be a requirement that proformas be up to date and that interim financials be provided if the presentation of the disclosures falls outside a certain window after the last financials were prepared. Disclosures can be updated after the sale of a franchise-- facts and numbers do change as time goes on-- but there cannot have been any misrepresentation in the original disclosures. 3. Unless there's some underlying issue, buying gifts for franchisees who have purchased multiple units is legal. Where it could be an issue is if the gifts were extremely lavish and the shareholders of the franchisor were concerned that the officers of the franchise were not being fiscally responsible. Depending on the franchise fee, giving a $3-5k gift to someone buying multiple franchises could possibly be a good business move.

LegalSolutions :

Or at least it could be argued that it was a good business call.

LegalSolutions :

Please don't hesitate to let me know if you have any additional follow up questions.

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