What is an Anago subfranchisor prohibited from doing regarding financial performance representations to prospective franchisees?
Anago Franchise · 2025 FDDAnswer from 2025 FDD Document
SUBFRANCHISOR SHALL NOT, UNDER ANY CIRCUMSTANCES, MAKE ANY FINANCIAL PERFORMANCE REPRESENTATIONS (AS DEFINED BY THE FTC Franchise Rule) TO ANY PROSPECTIVE FRANCHISEE, EXCEPT AS EXPRESSLY STATED IN ITEM 19 OF THE FDD (Subfranchisor – Single Unit).
- (d) Subfranchisor's failure to comply with Franchise Regulations shall be deemed a material default under this Agreement granting Franchisor the right to immediately terminate Subfranchisor's rights hereunder without issuance of a determination by an agency or court.
Subfranchisor acknowledges that any violation by Subfranchisor may result in fines, penalties and other enforcement proceedings.
Subfranchisor hereby agrees to indemnify and hold Franchisor harmless from any and all damages, liabilities, costs and expenses, including, without limitation, fines penalties and attorneys' fees, incurred by Franchisor directly or indirectly as a result of Subfranchisor's violation or alleged violation of any Franchise Regulations.
Source: Item 23 — RECEIPTS (FDD pages 62–298)
What This Means (2025 FDD)
According to Anago's 2025 Franchise Disclosure Document, a subfranchisor is strictly prohibited from making any financial performance representations to prospective franchisees. The only exception to this rule is if such representations are expressly included in Item 19 of the FDD, which pertains to subfranchisor single-unit operations.
This restriction is significant because it limits what a subfranchisor can say about potential earnings or financial outcomes to potential franchisees. The intention is to ensure that prospective franchisees are not misled by unsubstantiated claims. Subfranchisors must direct candidates to Item 19 for any financial performance information, ensuring compliance with the FTC Franchise Rule.
Failure to comply with this rule constitutes a material breach of the subfranchise agreement, potentially leading to immediate termination of the agreement without requiring a formal determination from an agency or court. Furthermore, the subfranchisor is liable for any damages, fines, penalties, and legal fees incurred by Anago due to the subfranchisor's violation of franchise regulations. This underscores the importance of adhering to the specific financial representation guidelines set forth by Anago to avoid severe repercussions.