So, you have your Franchise Disclosure Documents (“FDD”) and other related agreements in order and ready to start selling your newly created franchise system. You may consider advertising through various channels with catchy promises of success and profits and slogans such as “Join the Franchise Frenzy: Your Ticket to Business Success Awaits!” or “Follow our Franchise System and we guarantee you will be profitable within your first year!” Both are catchy and undoubtedly great hooks, but this leads to the question: What are the possible legal pitfalls with franchise advertising?

Franchise Advertising Best Practices

When drafting an advertisement for a franchise system, it is crucial to avoid making any financial performance representations unless the financial performance representations are also included in Item 19 of the FDD. This means that advertisements should not include any statements about the actual or potential financial performance of the franchise, such as sales figures, profit margins, or earnings potential, unless these are expressly disclosed within Item 19 of FDD, without alteration. Financial performance statements can be explicit or implicit. It is important to ensure that none of the statements in your advertisement are inadvertently implicit financial performance statements.

If financial performance representations are made within your advertisement and they align with your Item 19 of the FDD, then we would recommend also disclosing the following:

  • The number and percentage of outlets from which data is used that actually attained or achieved the data provided;
  • The time period when performance results were achieved as disclosed; and
  • A clear and conspicuous statement that a new franchisee’s results may differ from the represented data.

Advertisements should also not make any promises or guarantees. It is important that all statements made in advertisements do not conflict with any statement made in the FDD and that any statement in the advertisement is also disclosed in the FDD.

Additionally, we would recommend the following general guidelines when vetting statements made in your franchise advertisements:

  • If an industry statistic or other research is being used, then citations should be included from a credible source;
  • Be careful not to inadvertently disclose any proprietary or confidential information, such as customer data or sales trends; and
  • If franchisee testimonials are included in the advertisement, be sure to comply with the Federal guidelines concerning the use of endorsements and testimonials.

In general, an advertisement for a franchise should focus on the benefits and opportunities of the franchise, ensure all statements are in line with the FDD, and, if any authorized data is included, ensure that sources and supporting data are well supported.

Advertisement Pre-Filing Requirements

Certain franchise registration states also require that advertisements be pre-filed with the state’s examiners before being used:

Which Registration States require advertising be pre filed?

Once the advertisement has been filed with the appropriate registration state, and you do not hear from the state by the end of the review period, you can then begin to use the advertisement. If the examiner issues a comment, then the advertisement will need to be amended accordingly.

Not all advertisements are required to be pre-filed before publication, as certain exemptions may apply. Furthermore, many states have additional advertising requirements. Rhode Island, for example, requires that all advertising records used to sell a franchise be kept for a minimum of five years. Remember, the requirement to pre-file your advertisement and any exemptions to the pre-file requirement is only for those states listed above that require the pre-filing of your advertisements.

It is important to remember that before you make any advertisement regarding a franchise in any state, you must: (1) have a finalized FDD that complies with the Federal Trade Commission’s Franchise Rule, and (2) be registered with or file your FDD with the applicable registration/notice filing states listed below:

Federal FDD map Key

Advertisement Disclaimers

Lastly, you should include a disclaimer in the advertisement. The disclaimer should be tailored to the content that you are advertising. Certain registration states may also require that specific information be included in your disclaimer.

The article is for general information purposes only and should not be considered or construed as legal advice or opinion. We recommend that advertisement materials be reviewed by a franchise attorney. If you have questions pertaining to advertisement filings, exemptions, or disclaimers, please contact Elliot Boerman or one of our franchise attorneys at Manning Fulton or visit our website at www.manningfulton.com/services/franchise-hospitality to review our Franchising services.

Photo of Elliot Boerman Elliot Boerman

Elliot’s practice is focused primarily on franchise and general corporate law, working with franchisors and franchisees to grow their brands and businesses, and helping them to navigate state and federal franchise regulations. He works with franchisors to design and develop franchise disclosure documents…

Elliot’s practice is focused primarily on franchise and general corporate law, working with franchisors and franchisees to grow their brands and businesses, and helping them to navigate state and federal franchise regulations. He works with franchisors to design and develop franchise disclosure documents, franchise agreements, and area development agreements. Additionally, he regularly works with franchisors to help on-board franchisees and navigate the negotiation process. He has experience representing franchise systems in the hospitality, retail, and home services industries.

Elliot also represents franchisees, whether it is their first time entering into a franchise business opportunity or seasoned franchisees looking to purchase multiple or additional franchise units. His services include reviewing franchise disclosure documents and franchise agreements, area development agreements, addenda, and transfer documents.

Prior to joining Manning Fulton, Elliot worked at a franchise law firm in Charlotte, North Carolina. During law school he interned at a business and intellectual property law firm in Lynchburg, Virginia.

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