FTC Franchise Rule

The FTC Franchise Rule (formally titled "Disclosure Requirements and Prohibitions Concerning Franchising," 16 CFR Part 436) is the federal regulation administered by the Federal Trade Commission that governs the sale of franchises in the United States. First enacted in 1979 and significantly amended in 2007, the rule requires franchisors to provide prospective franchisees with a Franchise Disclosure Document (FDD) containing 23 specific items of information. The rule applies to any business arrangement that includes three elements: (1) a trademark license, (2) significant control or assistance from the franchisor, and (3) a required payment of at least $500 within the first six months. Violations can result in FTC enforcement actions, civil penalties, and rescission of franchise agreements.