The Role of the Franchise Compliance Coordinator

When advising clients on the operation of their franchise, we recommend that they designate a responsible employee to act as Franchise Compliance Coordinator. This position involves the implementation of a franchise compliance program to ensure that the business remains in compliance with all federal and state disclosure laws and regulations.

One of the main responsibilities of the Compliance Coordinator is to work with your sales and marketing staff (including franchise brokers) to ensure that they are well informed about the information they are required to share and are permitted to share with prospective franchisees. This helps ensure that franchise sales personnel follow proper procedures related to the offering and sale of franchises.

A second responsibility involves ensuring that the Disclosure Document and related Exhibits are kept up to date, at least quarterly and annually, with any “substantial changes” to the document(s). Additionally, the Compliance Coordinator is responsible for ensuring that state registration documents are amended and renewed in a timely manner. For example, registration and disclosure documents must be amended whenever there is a “substantial change” that affects the system or the company’s relationship with its franchisees (at a minimum, registration renewals must be filed annually). The Coordinator will work with your franchise attorney to coordinate any required updates and state registration renewals.

The final role of the Coordinator relates to the maintenance of files for each Franchisee as described below.

Franchise File Checklist

The following is a list of documents and information that the Compliance Coordinator must organize and include in the Franchisee’s file (as applicable to your franchise operation). Some of this information will be maintained by the franchise’s sales staff during the sales process. They should be aware of the required information:

• The date the first contact was made and by what method (phone, personal meeting, email, etc.).
• Notes of all the Meetings and Telephone Conversations carried out with the Franchisee during the sale process, including dates, nature of the interactions, key notes, actions carried out and information/materials provided.
• Copy of Correspondence/Emails (during the sale process) between the Company/Seller and the Franchisee.
• Record of credit reports, criminal history reports and other selection data and decision procedures used to approve the franchisee.
• Copy of signed Franchise Application, Personal Financial Statement and other related forms.
• signed Acknowledgment of receipt of the FDD.
• Copy of the Payment (ie check) of the Initial Franchise Fee.
• Copy of executed Franchise Agreement and other Agreements and Addendum (ie, Deposit Agreement, Site Selection Addendum, Confidentiality Agreement).
• Copy of the executed FRanchisee Certification of Compliance Way.

After the award of a franchise, the Compliance Coordinator must include the following forms and materials in the Franchisee’s file:

• Documentation (or copies) related to the receipt by the Franchisee of all required licenses, permits and bonds related to the Franchise Business.
• Proof of Insurance related to the Franchise Business.
• Copy of the Franchisee’s Lease Agreement and any “Lease Assignment Agreement” and/or Addendum.
• A record that tracks the franchisee’s payment of royalties, advertising fees, training fees, product purchases, etc. This information may be maintained electronically.
• A record that tracks the franchisee’s filing of any required reports (ie, royalty reports, annual tax returns, sales tax returns, list of employees, etc.). Copies of required reports must also be kept on file with the franchisee.
• A log that tracks the Franchisee’s participation in meetings, online conferences and other similar events. This information may be maintained electronically.
• Copies of all key correspondence to and from the franchisee.
• Copies of all complaints filed against the franchise business by consumers and government agencies.
• Copy of Inspection Reports made in the Franchise Business.
• Copies of any “Notice to Cure” breaches by the Franchisee under the Franchise Agreement.