Items Eighteen and Nineteen of the Federal Disclosure Document

Item eighteen is titled public figures.¹ This item requires the franchisor to list any public figures that are compensated for their aid in selling franchises. Although there was a critique to abolish this item since it is rarely used, the Commission decided that public figures have sway over investors, and it is still needed.² Item nineteen is titled financial performance representations,³ and allows the investor to examine whether a franchise location is profitable or not. Therefore, it is one of the most important items in the Federal Disclosure Document. This item prohibits the franchisor from making earnings claims that are not substantiated or included in the Federal Disclosure Document (with a few exceptions) and is a crucial anti-fraud provision in the Franchise attorney.⁴ The franchisor must have a reasonable basis for the financial performance representation and provide the basis for the assumptions.⁵ Furthermore, franchisors must specify if the financial performance representation is based on franchisees past performances or if it is a future projection.⁶ Franchisors are not required to provide any information in item nineteen. Subsequently, the franchisor is prohibited from making any financial representations at all if not disclosed under item nineteen.⁷ Item nineteen can be an asset for the investor; however, it is recommended to hire an experienced financial advisor to verify if the calculations are done correctly. This is because there is always the danger that the franchisor manipulates the numbers to make the franchise seem more lucrative than it truly is.⁸ An investor should be alarmed if a franchisor provides any earnings claims other than the one provided in the Federal Disclosure Document — unless what is provided are actual records of the existing outlet the investor is planning on purchasing, or the information supplements item nineteen.⁹