Washington State Mulls Electronic FDDs

Like most other legal documents, state law requires that Franchise Disclosure Documents (FDDs) be delivered to prospective franchisees in paper format. Many of the reasons for this are …

Like most other legal documents, state law requires that Franchise Disclosure Documents (FDDs) be delivered to prospective franchisees in paper format. Many of the reasons for this are relevant (security concerns, evidentiary purposes, etc.), even in a digital age, but now the state of Washington is considering allowing those documents to be transmitted electronically. The Federal Trade Commission has approved electronic transmission of FDDs and state organizations have paved the way in policy amendments, but the ruling is still out on whether those recommendations will be adopted. For more on this continue reading the following article from Blue MauMau.

The state of Washington, the high tech forest for firms such as Microsoft, Amazon and Expedia, is considering the appropriateness of entering the digital age when it comes to franchise disclosure documents. Its Securities Division wants feedback from members of the franchise industry in the state on whether it should allow the electronic receipt of franchise disclosure documents from franchisors and the delivery of the electronic documents to potential franchisees.

The problem up to now has been that neither the Washington State Franchise Investment Protection Act nor the Securities Division’s rules have explicitly allowed a franchisor to provide the Franchise Disclosure Document electronically to prospective franchisees. On September 14, 2003, the North American Securities Administrators Association (NASAA) approved a Statement of Policy Regarding Electronic Delivery of Franchise Disclosure Documents.  This Statement of Policy provided text for proposed state regulation regarding electronic delivery by franchisors of Franchise Disclosure Documents to franchisees.  On January 22, 2007, the Federal Trade Commission (FTC) adopted amendments to its Franchise Rule that explicitly allowed electronic delivery of Franchise Disclosure Documents.

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The Securities Division recognizes that explicitly allowing for electronic disclosure of franchise disclosure documents may benefit prospective franchisees by making franchise disclosure documents more readily available and more readable. Allowing electronic disclosure also benefits franchisors by reducing costs associated with reproduction and delivery of disclosure materials. As the amendments considered by the Division reflect the language of the NASAA Statement of Policy, and the FTC rules similarly allow for electronic delivery of Franchise Disclosure Documents, the amendments under consideration would better coordinate the Securities Division’s rules with other federal or state agencies.

Accordingly, the Securities Division is exploring amending its regulations regarding delivery and receipt of Franchise Disclosure Documents to allow for electronic delivery. In particular, the rule affected is WAC 460-80-300.  A copy of the Preproposal Statement of Inquiry is attached (pdf).

This article was republished with permission from Blue MauMau.


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