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New NASAA State Cover Sheets

NASAA (the North American Securities Administrators Association, Inc.) has adopted a new format for the State Cover Sheets that appear in Franchise Disclosure Documents ("FDDs") filed as part of state franchise registration applications. Below are some FAQs on this new requirement:

  • When is the new State Cover Sheet format effective?
    • January 1, 2020
  • When will my attorney update my FDD to include the new State Cover Sheets?
    • The new requirement applies to FDDs issued after January 1, 2020. Therefore, Franchise Disclosure Documents that are renewed by the April 30 deadline, as well as any amended FDDs issued after January 1, 2020, will need to comply with the new State Cover Sheets requirement.
  • What is included in the new State Cover Sheets?
    • "How to Use This Franchise Disclosure Document"
      • This is a new section in which one column lists questions the franchisee may ask be asking about buying a franchise and in another column lists where the franchisee may find this information in the FDD.
    • "What You Need to Know About Franchising Generally"
      • This is a new section which lists the disadvantages and risks of purchasing a franchise in general, not specific to your franchise.
    • "Special Risks to Consider About This Franchise"
      • This section lists the risks of purchasing your franchise offering specifically, using the above title.
      • The current form replaces "Risk Factors" required to be listed on the State Cover Page. The current form simply states:
        • Please consider the following RISK FACTORS before you buy this franchise... [and lists risk factors].
        • One required risk factor covers out-of-state Dispute Resolution. Other risk factrs are only added if a registration state requires it.
    • State Effective Dates Page
      • This information which is now included on the state cover page is to be inserted right before the receipt pages.
  • Why is NASAA adopting the new State Cover Sheets?
    • The new State Cover Page is designed and intended to protect franchisees and encourage perspective franchisees to read the entire FDD.
  • What can I do to prepare for this change?
    • Prepare your Franchise Sellers to more frequently answer the sample questions listed on the State Cover Sheets and provide a response consistent with the corresponding Item(s) in the FDD.
    • Prepare your Franchise Sellers to respond to questions regarding the risks of purchasing a franchise generally.

Please contact us with any questions regarding the new State Cover Sheets format or when you must be in compliance.

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