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This staff advisory opinion is issued in response to your request, dated August 11, 1995, for our view concerning the Franchise Rule's requirement that a franchisor update its disclosures within 90 days after the close of its fiscal year.

I. Introduction

In your letter, you state that, as a result of recent fiscal year end changes, it is impossible for an area franchisor to produce an annual revision of its disclosure document within 90 days of the end of the fiscal year of both the franchisor and the area franchisor: The franchisor and area franchisor use different fiscal years which end more than 90 days apart. You ask whether the FTC has a preference whether the area franchisor should use its own fiscal year end or the franchisor's fiscal year end as the basis for its compliance with the 90 day annual revision requirement. 16 C.F.R. § 436.1(a)(22).

II. The 90 Day Update Requirement

The Franchise Rule requires that disclosure documents be current as of the close of the franchisor's most recent fiscal year. 16 C.F.R. § 436.(a)(22). After the close of each fiscal year, "the franchisor shall be given a period not exceeding 90 days to prepare a revised disclosure statement and, following such 90 days, may distribute only the revised prospectus and no other." Id. See also Final Interpretive Guides to the Franchise Rule, 44 Fed. Reg. 49966, 49970 (August 24, 1979). Thus, the franchisor is obligated to make sure that its disclosure documents are accurate and current.

III. Franchisors and Subfranchisors Are Each Responsible for Their Own Disclosures and Updates

The Commission recognizes that some franchisors permit their franchisees to sub-franchise others.(1) Id. at 49969. In such circumstances, the franchisor and the subfranchisor are free to decide between themselves as to the party responsible for preparing and disseminating the required disclosures. Id. Since the goal of the Rule is to furnish complete and accurate disclosure of essential and reliable information, it is the joint responsibility of the franchisor and the subfranchisor to ensure that all categories of information required in the disclosure document are answered by the franchisor, by the subfranchisor, or by both, where appropriate, in order that the answers will be complete and accurate. Id.

From your letter, we cannot determine which categories of required information are answered by the subfranchisor, the franchisor, or both. If a subfranchisor's fiscal year ends December 31, for example, then the subfranchisor should revise its disclosure document within 90 days of December 31, by updating all categories of information that are the subfranchisor's agreed upon responsibility to answer. However, if other categories of information are answered by the franchisor, and the franchisor's fiscal year ends August 31, then those categories of information should be updated within 90 days of August 31.

IV Conclusion

Franchisors and subfranchisors are each responsible for updating the disclosures they agree to make in a disclosure document within 90 days after the close of their fiscal year. Where franchisors and subfranchisors use different fiscal years, each is still responsible for updating its own disclosures to ensure that they are accurate and complete. This may require more than one annual update.(2)

Please be advised that the views expressed in this letter are those of the FTC staff. They have not been reviewed, approved, or adopted by the Commission, and they are not binding upon the Commission. However, they do reflect the opinions of the staff members charged with enforcement of the Franchise Rule.

Date: August 28, 1995
Franchise Rule Staff

(1)We will assume that by "area franchisor," you mean a subfranchisor.

(2)We also note that the disclosure document, in any event, must be updated on at least a quarterly basis, whenever a "material" change occurs in the information contained in the document. 16 C.F.R. § 436.1(a)(22); 44 Fed. Reg. at 49970. It is also the joint responsibility of the franchisor and subfranchisor to make the appropriate quarterly updates.