New Franchise Rules Require Separate Disclosure Documents for Area Representative Agreements09/02/2014 | Fall 2014 Newsletter
In September, the state regulators association (the North American Securities Administrators Association) adopted new rules which will make franchise registration more cumbersome for franchisors who offer both area representative agreements as well as single unit or area developer agreements.
Up until now, franchisors typically used one combined disclosure document to offer three types of arrangements, namely a single unit agreement, an area developer agreement, and an area representative agreement.
A single unit agreement gives the franchisee the right to open a single location. An area developer agreement gives a franchisee the right to open multiple locations in a designated area per an agreed schedule. An area representative agreement gives the representative authority to act as a broker to solicit franchisees to enter into franchise agreements with the franchisor and typically requires the representative to assist with providing some of the training and support for franchisees in the representative’s designated territory, in return for a portion of the initial franchise fee and the on going royalties collected from franchisees.
Under the new rules franchisors must prepare and file a separate disclosure document for an area representative agreement. The state regulators association felt that it can be confusing to combine disclosures for both area representative agreements and single unit or area developer agreements in one disclosure document, because the relationships and agreements for these offerings are very different.
About the author: David T. Azrin is a partner at Gallet Dreyer & Berkey LLP. Mr. Azrin represents a range of business clients and individuals on employment, trademark, and franchise law matters. Mr. Azrin is the sponsor of the International Franchise Association’s franchise business network program in the New York City area, and has been named one of the top franchise attorneys (“Legal Eagle”) in the United States by the editorial board of Franchise Times magazine. Mr. Azrin can be reached at firstname.lastname@example.org.