In thirteen states (Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin), a franchisor may not offer or sell a franchise without first registering the offer with the state. The centerpiece of each of these states' franchise registration applications is a prospectus in a specified format: the Uniform Franchise Offering Circular (UFOC) which, once approved by a state, must be provided to prospective franchise purchasers. In all other states, the Federal Trade Commission's franchise rule (16 CFR Part 436) imposes pre-sale disclosure obligations that may be fulfilled by providing a UFOC. As a practical matter, franchise sellers that operate in more than one U.S. state universally employ the UFOC.

The original UFOC Guidelines were prepared and adopted by the predecessor to the North American Securities Administrators Association (NASAA) in 1975. Except for changes in 1986 pertaining to earnings claims and information on terminated franchises, the original Guidelines were essentially unaltered until April 25, 1993, when NASAA adopted new Guidelines by unanimous vote. The FTC will mandate use of the new Guidelines beginning on the date six months after the last of the registration states has officially approved their use (the "Effective Date.") Until then use of the new format is optional. At this writing, only New York and Virginia remained to grant formal approval and, unofficially, all states had approved their use.

The new Guidelines will necessitate extensive revisions to existing franchise offering circulars. NASAA has articulated two major purposes. First, to simplify and clarify the disclosures the UFOC contains by mandating use of "plain English." Second, to rationalize the differing state versions so that one basic document may be adapted for use nationwide by the addition of state-specific exhibits and addenda. In addition, a number of the new Guidelines are apparently designed to smoke out practices on the part of franchisors that many franchisees and state administrators charged with protecting franchisees find distasteful or to reveal weaknesses in franchise systems.

After the Effective Date, all initial registrations, renewals, and re-registrations must be in the new format, but franchisors may continue to use the old format until one of these events occurs.

A major question facing franchise practitioners is when during the phase-in period to rewrite their clients' UFOCs. The revisions will be extensive and costly because the new version includes a great deal of new information. Although it might at first seem logical to avoid the expense and labor of rewriting the UFOC as long as possible, for many registrants there is a powerful reason for doing it sooner.

The "drop dead" date for changeover for most franchisors will be at their annual renewal filings in 1995. Although some registration states grant a full year of registration to each franchisor no matter what the effectiveness date, others (California, Hawaii, Minnesota, New York, South Dakota, and Wisconsin) peg the registration expiration date and the corresponding renewal filing obligation to the end of the franchisor's fiscal year. In these states, registrations expire between 90 and 120 days (depending on the state) after the franchisor's fiscal year-end to allow inclusion of audited financial statements for the franchisor's most recent fiscal year.

Because most corporations have a December 31 fiscal year-end, the majority of franchise registrations in these states must be renewed on the same date each year. As a result, already over-burdened franchise examiners experience a quantum increase in their work load at that time of year.

Under normal circumstances, examiners need only review renewal documents for redlined changes to previous filings. In 1995 they will need to read and evaluate the entire offering circulars of those registrants that have just changed to the new format. Because of this, many franchise attorneys worry that their franchisor clients may be temporarily put out of the business of selling franchises in some states if their registrations expire while government examiners plow through a huge backlog of filings.

Faced with this possibility, it may seem a better alternative to prepare a rewritten offering circular and file sooner. This could be done by an amendment taking effect afterwards during an off-peak period of the franchise examiners' year. Unless the amendment reflects a material change in the information required to be disclosed in the UFOC, as opposed to a change in the format only, a franchisor might then continue to sell franchises under the old UFOC while the amended UFOC is pending.