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Let us take a moment to offer a belated welcome to Karen Gordon Mills, who was finally confirmed as the head of the Small Business Administration last Thursday. Her appointment couldn’t come fast enough, as cracks in President Obama’s small business stimulus package are already beginning to emerge.

Ms Mills, who comes to the position after a successful career as a venture capitalist, perhaps does not seem like the ideal candidate for revitalizing the small business sector, but she has made all the right soundings during the confirmation process.

“I am a believer in American small business,” she told the committee. ” … If confirmed I pledge to pursue these tasks with the utmost energy, and to be your partner in giving small businesses the help they need to thrive, to grow and put Americans back to work.”

As Business Week magazine chronicles, Ms Mills’s appointment has been widely hailed by those in politics and the small business sector. They quote Karen Kerrigan, president of the Small Business & Economic Council:

“I think [Mills] can be highly successful in transforming the agency by simply focusing on collaborative partnerships with other agencies and departments, as well as business associations and private-sector partners.”

Unfortunately, Ms Mills really has her work cut out for her. The Washington Post recently reported that only two weeks after President Obama pledged $15billion for the small business sector, “every major provider of these kinds of loans says the plan will not work as designed”. It seems that lending institutions are finding the terms of the government’s plan, in particular having to surrender ownership to the government and limit executive pay, so unappealing, they’re not participating.

“How can you do business if the government at any time can change the rules of the game to protect its investment? That unknown today . . . puts us in a position that we don’t feel is prudent,” Joseph J. DePaolo, chief executive of Signature Bank.

So the challenge for Karen Gordon Mills is pretty clear. The country is full of prospective franchisees ready to start work. What they are waiting for is free-flowing capitol. Her success (or failure) in her post will be judged on whether small business people can get the lifeline they desperately need.

The day is finally upon us. Barack Obama’s election on November 4 seems quite long ago now, but many people — including those in the world of franchising — are hoping Obama’s inauguration this afternoon may act as a catalyst for the global economy.

Many in the franchising world are wondering what an Obama presidency will mean for small businesses and entrepreneurs. It’s important to keep in mind that Mr Obama has legitimate franchise credentials: his first job was in franchising, at a Baskin Robbins in Honolulu. And though the President blames the experience for distaste of ice cream, it’s safe to say he learned first-hand the importance of small businesses and franchises to the fabric of American society.

Here’s a link to Obama’s plan for small businesses. His scheme centers on providing a small business health tax credit, eliminating capital gains tax for small business people and increasing access to small business credits for women and minorities. It’s unclear exactly how many of his goals for small businesses will be enacted. Some are skeptical: Forbes magazine yesterday published an article that said the small business initiatives in Obama’s economic stimulus plan weren’t going far enough.

“Businesses need tax incentives that will put money in their pockets right now. Yet few of the tax provisions being considered accomplish that to any significant degree,” says Dean Zerbe, a former senior tax counsel to Republican senator Charles Grassley, of Iowa.

We can only wait and see to know how far Mr Obama’s economic plan will go to protect small business people, but one thing is certain: the new President will receive unprecedented good will in his first few months as he attempts to steer the country through its worst economic crisis since the Great Depression. Everyone in franchising will be wishing him the best.

You’ve heard of the Uniform Franchise Offering Circular, or UFOC. This allows potential franchisees to weigh the pros and cons of any franchise offering. Well, as of July 1, 2008, the Federal Trade Commission finished phasing in its amended Franchise Rule by getting rid of the UFOC and instating the Franchise Disclosure Document. The FDD not only includes the UFOC disclosure requirements, but requires more extensive disclosure on some topics. This can be helpful for potential franchisees, with more transparency on the part of franchisors.

The FDD will contain 23 items of information about the franchise, its officers and other franchisees, including information on the franchise’s litigation history, past and current franchisees (and ways to contact them), the exclusivity of a territory, what assistance will be provided by the franchisor and the cost of purchasing and starting up a franchise. Information about the financial performance of the franchise will also be included.

The new federal Franchise Rule will be much more closely in line with state franchise disclosure laws and changes in franchise marketing and new technologies. The Rule also aims to reduce compliance costs and address franchisee complaints about the franchisor - franchisee relationship.

Let’s examine what top areas require more extensive disclosure under the FDD:

1. Lawsuits franchisors filed against franchisees
2. Franchisors using “confidentiality clauses” during lawsuits
3. Warning when there is no exclusive territory
4. What “renewal” means for the franchise system

The biggest differences between the new Franchise Rule and the old UFOC requirements?

1. Franchises and business opportunities now have separate requirements under the new Rule.
2. More disclosure about earnings is encouraged, with information about business costs and financial results for a subset of franchisees (as opposed to results for the entire chain) available.
3. The FDD can now be sent electronically.
4. Disclosure of all the franchisee associations in their system (ones approved by the franchisor and independent associations).
5. The corporate parents of a franchisor must be disclosed if its guarantees the business and/or provides supplies to the franchisees.

So now that this new Franchise Rule is in effect, look for that FDD in place of the UFOC … and remember to read it carefully!

The Franchise Agreement is a legal contract and is actually part of the Universal Franchise Offering Circular (UFOC), which is supplied to prospective franchisees. The UFOC spells out everything about franchise operations – processes, marketing, costs, support etc. in 23 specific items. The Franchise Agreement is included in item #22, along with any other contracts that must signed, such as real estate leases or financing forms. The Franchise Agreement is attached as an “exhibit” and has blank spaces to be filled in preparation for the franchisee signing the contract.

The UFOC ends with a receipt that carries no obligation to the prospective franchisee – it just validates that the franchisee has received the UFOC. No money can be exchanged or a Franchise Agreement signed until ten days after acknowledgment of receipt of the UFOC. There is also a five-day waiting period for the signed Franchise Agreement once it is completed

After a prospective franchisee has reviewed the UFOC with an attorney and accountant, and is ready to sign the Franchise Agreement, the franchisor will fill in the blanks on the Agreement. These will stipulate in dense legal jargon the relationship and obligations between franchisor and franchisee. Once the Agreement is filled in with the details, the franchisee has five days to return the signed contract.

As part of the UFOC, which the franchisee acknowledges receiving, the Franchise Agreement spells out specifics on the initial franchise fee, ongoing fees and royalties, training and length of the contract. All of these should be examined and compared to the UFOC items. The Franchise Agreement should reinforce the obligations and expectations described in the UFOC.

Because the Franchise Agreement is the binding legal contract between the two parties, any deviation from the UFOC must be added to the Franchise Agreement. For instance, if the Franchisor is willing to make an exception regarding premise requirements, or if the Franchise Representative promises extra training or support, then make sure it is in the Franchise Agreement contract. Verbal promises are worthless. The Franchise Agreement, as part of the UFOC, implies that everything stated in the UFOC is part of the Franchise Agreement. If the franchisee negotiates exceptions that differ, even if only slightly, from the UFOC descriptions, then these negotiated exceptions must be detailed in the Franchise Agreement.

The Franchise Agreement is the legal document that governs the relationship between the Franchisor and Franchisee. In the case of any disputes, the Franchise Agreement is the ruling factor about the outcome. That is why it is so important to have an experienced franchise attorney review the UFOC and compare it with the Agreement terms.  The Franchise Agreement should match the UFOC items regarding fees, territory, training and duration of the franchise contract, and any exceptions to those items must be described in specific detail within the Agreement.

To find an attorney knowledgeable about franchise contract law, visit this link.

Click on the Franchisee tab at top, then go the listings at left. At the bottom, you’ll see a tab for attorneys. This takes you to a state-by-state directory of franchise lawyers.

Another helpful source for information is the International Franchise Association.

The Federal Trade Commission oversees franchise contract law, and the Agency’s web site has a Consumer Guide to Buying a Franchise, plus a Franchise Rule Compliance Guide.

The purpose of this article is to provide general information about recent developments in franchising. Nothing in this article constitutes legal advice, which can only be obtained as a result of personal consultation with an attorney.