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JD Supra: NASAA Adopts Franchise Acknowledgment Policy That is Harmful to Franchisors

The ruling may affect franchisors’ ability to detect dishonest sales practices.

The North American Securities Administrators Association (NASAA) announced last week that it had adopted a policy banning a majority of acknowledgments and compliance questionnaires used by franchisors. Many franchisors utilize questionnaires to include disclaimers relating to certain representations that may have been made during the franchise sales process. They cite the reason for the questionnaires is to detect and identify problematic sales practices.

Effective January 1, 2023, NASAA’s policy dictates that if a franchisor asks a prospective franchisee to complete a questionnaire during the sales process, the questionnaire must be included as an exhibit to the FDD. The policy also prohibits statements or questions that could cause a franchisee to surrender rights under federal or state law.

Many franchisors view the policy as a severe reaction in response to a few “bad apple” franchisors and that the policy will ultimately limit franchisors’ ability to root out dishonest sales practices.

While the NASAA policy is not a change in federal or state law, it will likely be implemented by most state franchise examiners as they review franchise applications.

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