The Role of the Franchise Compliance Coordinator
When advising clients concerning their franchise operation, FranSource recommends that they designate a responsible employee to act as the Franchise Compliance Coordinator. This position entails implementing a franchise compliance program to ensure the company remains in compliance with all federal and state disclosure laws and regulations.
One of the primary responsibilities of the Compliance Coordinator is to work with your sales and marketing staff (including franchise brokers) in order to ensure that they are knowledgeable in terms of the information they are required to share and permitted to share with prospective Franchisees. This helps ensure that franchise sales personnel follow proper procedures related to the offer and sale of franchises.
A second responsibility entails their ensuring that the Disclosure Document and related Exhibits are kept up to date, at a minimum quarterly and annually, upon any “material change” to the document(s). In addition, the Compliance Coordinator is responsible for ensuring that state registration documents are amended and renewed on a timely basis. For example, registration and disclosure documents must be amended whenever there is a “material change” affecting 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 their maintaining files for each Franchisee as described below.
Franchise File Checklist
The following is a list of the documents and information that should be organized by the Coordinator and retained in the Franchisee’s file. Some of this information will be maintained by your franchise sales personnel during the sales process. They should be made aware of the required information.
- The Date that “First Contact” was made and by what method (phone, personal meeting, email, etc.).
- Notes of all meetings and telephone conversations conducted with the Franchisee during the sales process, including dates, nature of the interactions, key notes, actions taken, and information/materials supplied.
- Copy of correspondence and emails between the Company/Franchise Representative and the Franchisee.
- Record of credit reports, criminal background reports, and other screening data and the decision procedures used to approve the Franchisee.
- Copy of the signed Franchise Application, Personal Financial Statement and other related information and documents.
- Signed and dated FDD Receipt.
Following the award of a Franchise, the Coordinator should include the following forms and materials in the Franchisee’s file:
- Copy of the executed Franchise Agreement and all other Agreements and Amendments.
- Copy of the franchisee’s executed “Franchisee Closing Questionnaire” (attached as an Exhibit to the FDD).
- Record of the required payment for the Initial Franchise Fee (i.e. check, wire transfer confirmation).
- Documentation (or copies) related to the Franchisee’s receipt of all required licenses, permits, certifications, etc. relative to the Franchise Business.
- Proof of required insurance for the Franchise Business.
- Copy of the Franchisee’s executed Lease, “Agreement With Landlord”, and any other related Addenda.
- A log that tracks the Franchisee’s payment of royalties, advertising fees, product purchases, etc.
- A log that tracks the Franchisee’s submission of any reports required to be submitted (i.e., Royalty Reports, Financial Statements, Annual Tax Returns, Sales Tax Returns, List of Employees, etc.).
- A log that tracks the Franchisee’s participation in owners’ meetings, conferences, and other similar events.
- Copies of important correspondence with the Franchisee.
- Copies of all written complaints made against the Franchisee’s Franchise Business by customers and governmental agencies.
- Copies of Inspection Reports conducted by the Franchisor and any governmental agencies.
- Copies of any Notice of Default sent to the Franchisee.