taking  a ggre ssi ve  a c ti on to elim inate  c onti nuing  vi olations of the f ra n c hise a gre e m e nt b y   a n y  
de fic ient f r a nc hise e s. Thi s a pproa c h
m a y  be  pr e se nted a s a   " posi ti ve  a tt ribute "  of the   fr a n c hisor
to prospe c ti ve  fr a nc hise e s, a nd a s a  r e sult , man y   fr a nc hisee s man y  h e a r a bo ut fr a nc hisor ini ti a ted
law suit s e ve n if sa id l it igation i s not  disclosed in t he  UF OC.
As a  le g a l conside ra ti on, I  do n
ot b e li e ve  ther e  sho uld be a  re quir e ment f or t his par ti c ular  
infor mation t o be  disclosed a s thi s infor mation does not di re c tl y  se rv e  the pa rtic ular  purp os e  of
prote c ti ng  th e  c onsum e r i n fr a nc hise t ra nsa c ti ons, a nd, pa rtic ula rl y   with l a r g e   e stablis he d
fr a nc
hisors, su c h a  r e quir e ment c ould s ubst a nti a ll y  incr e a s e  c osts  for  p re pa r a ti on of  the ma ter ial
a nd fo r the  inc re a s e d doc ument si z e  that would ha ve  to re sult  fr om t he  incl usion  of this m a ter ial.
Que sti on/Topi c : S hould "g a g"  ord e r a rr a n ge ment s be  re g ulate d?
C
omm e nt/ R e sponse: " Ga g"  ord e r a rr a n ge ments of ten f orm a  ne c e ssa r y  ince nti ve  for  fr a nc hisors
to ente r into settl e ment a g r e e ments wit h fr a nc hise e s. Ga g  ord e r a rr a n ge me nts s hould not  be  
re g ulate d, a nd th e y  shoul d c e rta inl y  not be pr ohibi ted. W it h re spe c t t o fu
ll  disclosure  to
prospe c ti ve  f ra nc hise e s, a  fr a n c hisee  who ha s a gr e e d to a "g a g"  ord e r ma y   not be pe rmitt e d to
discuss t he  ter ms of his  se tt leme nt or li ti g a ti on with a ne w pr osp e c ti ve  f ra n c hisee , but he is not  
prohibit e d fr om t e ll ing  th e  ne w pr osp e c ti ve  f r
a nc h isee  that he  is s ubjec t t o the spe c ific  
re strictions  im pose d b y   a  "g a g"  ord e r. I f  thi s infor mation i s troubli ng  to t he  prospe c ti ve  
fr a nc hise e , he  will  then p ursue  it  fur ther   with t he  r e pre se nt a ti ve s of the  f ra n c hisor unti l he is
sa ti sfie d with re spe c t
to t his or a n y  oth e r tr a ns a c ti ons t ha t ar e  subj e c t t o "gag"  o rde rs.
Que sti on/Topi c : S hould t he  C omm iss ion continue pe rmitt ing  a  thr e e
-
y e a r p ha se
-
in of a udit e d
fina nc ials for  n e w e ntr a n ts ?
C omm e nt/ R e sponse: I  de finitel y  be li e v e  the thr e e
-
y e a r pha s e
-
in pe rio
d shoul d be  c onti nue d. This
is a most  e ff icie nt and f a i r me thod of pr ovidi ng   fin a nc ial dis c losure   a nd a c c ountabili t y   for  ne w
fr a nc hisors without  pe na li z ing  them or  re strictin g  the e ntre p re ne u ria l m oti va ti on that is  a n
im porta nt compone nt. Ne w, e mer g in g   fr a
n c hisors  shoul d not be disc oura g e d sol e l y  due  to
fina nc ial r e porting   re quir e ments a s opposed to the  moni toring  of f inan c ial s tabili t y  it se lf.
Que sti on/Topi c : Dist ing uishi ng  B usiness Oppo rtunit ies f rom f ra nc his e s?
C omm e nt/ R e sponse: I t has be e n e st a bli she d t
ha t t he re  is a ge ne r a l conse ns us t ha t " B usin e ss
Oppor tuni ti e s"  shoul d be  dist ing uished a nd re c o gniz e d a pa rt f rom f r a nc his e s.
W it h re g a rd to pr e
-
sa l e  d isclosure s re quir e d of B u siness Oppor tuni ti e s, I   fe e l i t i s a pprop ria te
that a n y  suppl ie r of  20 pe rc e nt or
mor e  of the  sta rt
-
up inventor y  of a n inves tor in a  B usiness
Oppor tuni t y  shoul d ha ve   to be disc losed pr ior to t he  sa le.
As a n a lt e rn a ti ve  de finiti on of  a   " B usiness Oppo rt unit y " , I  would su gg e st t he  following  
de finiti on:
A B usiness Oppor tuni t y  i s a  volunt a r
y  a r ra n g e m e n t betwe e n two pa rtie s, w he re  one  p a rt y  (the  
fir st par t y ), of fe rs the  oth e r pa rt y  (th e  se c ond p a rt y ) pa rtic ipation i n the on
-
going  busi ne ss
2
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