A consultant’s perspective on disclosure, franchise recruitment, and reducing risk

Michael Seid, CFE, Managing Director, MSA Worldwide

When a franchisor hires a franchise sales organization (FSO) to run its sales process, it hands that company one of the most important jobs in the business: helping to choose the people who will represent the brand. What those buyers are told, what they understand, and why they decide to invest will shape the franchise relationship for years. The FSO is paid when the agreement is signed — but the consequences of a poorly managed recruitment stay with the franchisor long after the commission has been earned.

The Federal Trade Commission’s action against the Premier Martial Arts franchisor and its former sales organization, Franchise Fastlane, should prompt every franchisor that uses an FSO to take a hard look at its own arrangements. The question it raises applies to any company that relies on an outside organization to sell its franchises:

Should a prospective franchisee be told about a relevant enforcement settlement involving the organization handling the sale?

From a business perspective, my answer is yes. I am not a lawyer, and this article is not a legal opinion. My purpose is to raise the business issues and encourage a broader discussion among franchisors, their advisors, and franchise counsel.

My work as an expert witness in complex franchise litigation has shown me how business decisions are examined after a franchise relationship ends in a dispute, and that experience informs what follows. My concern is how a franchisor makes sound decisions, protects the quality of its recruitment, and limits the risks it can avoid. Franchise counsel should decide what the law requires and where the information belongs. As a business matter, however, if it were my system, I would want a very good reason before withholding relevant sales history from someone I was asking to invest in it.

What happened, and why it matters

On October 5, 2026, the FTC announced proposed settlements with Premier Franchising Group, LLC (PMA), the Premier Martial Arts franchisor, and Franchise Fastlane, LLC (FastLane), its former franchise sales organization. The proposed payments total $1.85 million, with $650,000 from the franchisor and $1.2 million from FastLane. The FTC alleges that the companies made misleading sales and earnings claims, including representations that the business could be operated profitably on a semi-absentee basis, and that they violated the Franchise Rule. Under the proposed orders, certain PMA franchisees would also be offered the opportunity to cancel their franchise agreements without penalty.^[1]

The FTC also alleges that PMA failed to identify FastLane personnel who had management responsibility for franchise sales or operations. Franchisors that rely on an outside company to run their franchise development function should read that part of the complaint carefully. The people who actually manage the sale matter, even when they work for another company.^[2]

The facts should be stated accurately. As of this writing, the FTC lists the case as pending, and the proposed orders require court approval. FastLane’s proposed order states that it neither admits nor denies the allegations, except as specified in the order. The action concerns the PMA sales described in the complaint and is not a judgment about any other brand or FSO. Any explanation given to buyers should make clear what was alleged, what was resolved, and whether the current franchisor was involved.^[3]

The FDD tells buyers who sells the franchise, who manages the business, and what litigation and government orders must be reported. Item 23 identifies the franchise sellers. Item 2 identifies the franchisor’s officers, directors, and any other individuals with management responsibility for the sale or operation of franchises. Item 3 requires disclosure of specified litigation and orders involving the franchisor and certain related parties, including the people listed in Item 2. The Rule does not automatically require an outside sales company’s history to appear in the FDD. Counsel should decide what the particular relationship requires, and management should make sure that counsel understands exactly how that relationship works.

Start with what the buyer should understand

Start with a plain description of who does what. Is the FSO simply introducing prospects, or are its people directing the recruitment process? The FTC’s guidance treats a broker who refers prospects differently from someone with real management responsibility for franchise sales, and the fact that a person works for a separate company does not by itself settle whether that person must be identified in the FDD.

The proposed FastLane order also binds certain officers, agents, employees, and others who receive notice of it. Once the order takes effect, counsel should consider what it means when any of those people manage sales for another franchisor, including whether it must be disclosed in that franchisor’s FDD. A person’s absence from the list of named defendants does not necessarily answer the question. At the same time, the proposed order makes clear that a franchisor does not become subject to it simply because it hired FastLane.^[4]

Those are legal questions for counsel. Management still has a business decision to make, and I would start with two questions: what does the buyer understand about the people presenting the opportunity, and what information could reasonably affect the buyer’s confidence in the sales process?

Who is speaking for your brand?

An FSO can be an independent contractor and still act as the franchisor’s agent in selling its franchises. What the contract says matters, but so does how the two companies actually work together, and counsel should review both.

Consider the prospective franchisee’s experience. The franchisor sends the prospect to the FSO, whose representatives present the opportunity, explain the FDD, coordinate the approval process, and guide the buyer to signing the franchise agreement. The buyer may reasonably see those people as speaking for the franchisor. If a dispute follows, the questions will be what the franchisor authorized, what it led the buyer to believe its representatives could do, and whether it accepted their conduct after learning the facts. California law illustrates why this matters. It recognizes ostensible agency when a principal causes a third party to believe that someone is its agent, and it allows a principal to ratify an agent’s act after the fact, including by accepting its benefits.

A clause in the FSO agreement prohibiting unauthorized earnings claims is useful, but it is not oversight. Management needs to know what is actually being said to prospects. If a sale is later disputed, expect to be asked who approved the presentation, what the franchisor knew, how it handled complaints, and whether it kept accepting sales after problems became apparent. Those questions remain even if counsel concludes that the FSO’s earlier settlement did not belong in Item 3, because they concern the franchisor’s oversight of its own recruitment process.

A dispute can reach beyond the FDD

The FTC Franchise Rule does not give buyers a private right of action, but state law offers other routes for a claim over unfair or misleading sales practices. For management, the point is straightforward: complying with the FTC’s disclosure requirements does not end the inquiry into how a franchise was sold.

The franchise laws of a number of states prohibit offering or selling a franchise through an untrue statement of a material fact, or through the omission of a material fact needed to keep the statements made from being misleading. Several of those laws allow buyers to recover damages and, in some cases, to rescind the franchise agreement — and state deceptive trade practices statutes can also come into play. These are good reasons to ask counsel to look beyond Item 3 when assessing the risk.

Suppose a franchisor promotes the integrity and expertise of its sales organization but says nothing about a recent enforcement settlement involving that company’s franchise sales practices. A disappointed buyer may later ask whether that favorable description told the whole story. The franchisor may respond that the settlement involved a different brand and different circumstances. That may be true, but the franchisor chose that company to manage its sales process, and it should weigh the company’s history deliberately rather than assume it is irrelevant.

Tell the whole relevant story

In a dispute, I would expect the franchisee to claim that important information was deliberately withheld, or that the explanation it received was incomplete and misleading. The franchisee would still have to prove why the information should have been provided, the required intent, how the omission affected its decision, and how it caused harm.

To reduce that risk, I would focus on the presentation the prospective franchisee actually received. Are we asking the prospect to trust the FSO and what it says? Would information about regulatory or litigation actions against the FSO have helped the buyer ask better questions? I would expect franchisee counsel to argue that the omitted history changed the investment decision, just as I would expect the franchisor to argue that the FSO’s other matter had nothing to do with this sale or the buyer’s loss.

Timely disclosure creates a record of what the franchisor told the buyer and when. It also gives the buyer a chance to ask questions while there is still a real choice about whether to proceed. That is sound risk management, even though it cannot prove that every later sales statement was accurate or that the buyer was properly qualified.

What did management do after learning of the problem?

A buyer may also challenge the franchisor’s judgment in selecting the FSO and in continuing the relationship. Some courts have recognized claims for the negligent selection of an outside contractor in other settings. Those claims have limits, however, and a franchisee’s financial loss does not by itself establish that the franchisor was careless or that it should pay for that loss.

Management should be ready to explain the decisions it made. What did we review after learning about the enforcement action? Did we compare the practices described in the complaint with our own sales presentations? Did we investigate complaints, change scripts, improve training, or require better reporting? Did we document the review? Disclosure is only one part of the response. The franchisor also needs to be satisfied that the FSO’s current work for its brand meets the standards it expects in its recruitment process.

Regulators are already focused on third-party sellers

California’s SB 919, signed in September 2024, establishes a registration and disclosure framework for franchise brokers, including many FSOs, that turns on what they do rather than the title they use. It includes a broker disclosure document to be provided to prospective buyers. Implementation depends on funding. The broker program begins on the later of July 1, 2026, or one year after the required appropriation, so counsel should confirm the current timing and requirements. Either way, the organization selling the franchise is now drawing regulatory attention in its own right.

The North American Securities Administrators Association (NASAA) has moved in the same direction. Its Model Franchise Broker Registration Act, adopted May 4, 2026, calls for registration of broker firms and their representatives and for disclosure to buyers before a specific opportunity is discussed. That disclosure covers material litigation involving the broker and relevant personnel, as well as how the broker is compensated. The model act would also prohibit franchisors from using unregistered brokers. It is a template for the states and binds no one until a state enacts it, but it reinforces the importance of knowing who is conducting the sale and what buyers should know about them.

Existing seller disclosure forms also deserve a look. NASAA’s Form D, the franchise seller disclosure form used in state franchise filings, asks about each seller’s background, specified litigation, and government orders, and New York’s published version expressly covers independent third parties that provide sales services. A form filed with a regulator serves a different purpose from information delivered to a buyer. The franchisor should review both with counsel rather than assume that completing one answers every disclosure question.

Taken together, these developments support a business approach that goes beyond the minimum required information about the franchise offering. Buyers also need an appropriate understanding of the organization presenting it. A franchisor using an FSO should review that organization’s role, relevant history, compensation arrangements, and required filings together, with the goal of a sales process the franchisor can explain and stand behind.

Make disclosure part of a better recruitment process

I would begin with a joint review by management and franchise counsel. Management should explain how the FSO handles sales and who makes the important decisions. Counsel should review the settlement, any order in effect, who must be identified in the FDD, and the requirements of each state where the brand offers franchises. If the information belongs in the FDD, a separate letter will not substitute for it.

The FDD also limits what can be included. The FTC Rule generally prohibits adding information the Rule does not require unless state law requires or permits it, so a franchisor cannot simply insert everything it considers useful. Counsel should decide whether the settlement belongs in Item 3, in a state-specific disclosure, or in a separate written notice delivered during the sales process. My recommendation is to make the relevant information available to the prospective franchisee in a form counsel has reviewed and approved.

Keep the explanation factual and easy to understand. Name the company, describe the matter, state whether the settlement is still awaiting approval or has taken effect, distinguish allegations from findings, and describe the FSO’s role with the current brand. If the franchisor was not involved in the action, say so. Any description of improved practices should cover only changes that have actually been made.

Give the buyer enough time to consider the information and ask questions before committing. Keep a record of delivery, and make sure the website, sales calls, presentations, and FDD all tell the same story. An indemnity requiring the FSO to reimburse certain losses may help the two companies allocate costs, but it does not make a buyer’s claim against the franchisor go away.

The ABA Forum on Franchising holds its 49th Annual Forum in Toronto on October 14–16, 2026, and I hope this issue finds its way into the discussion there. I would like to hear franchise counsel address what buyers should be told about an FSO’s enforcement history, how the FSO’s role affects the disclosure decision, and what risk remains when Item 3 does not clearly require the information. Those of us who advise franchisors on business decisions would welcome practical guidance on what to tell buyers and how to present it.

The franchisor has a business decision to make

Disclosure cannot guarantee that a buyer will never sue. It can help the franchisor show that relevant information was provided before the investment and that the buyer had time to consider it, and it gives management a reason to examine the quality of its sales process. Those benefits are worth having even when counsel believes a decision not to disclose could be defended.

In my work, I treat franchisee recruitment as part of the overall business system. The goal is to select franchisees who understand the opportunity, have the ability to operate successfully, and start with realistic expectations. A sales process that creates expectations the system cannot meet undermines that goal, and the problems it causes do not stay in the sales department.

For any franchisor using an FSO to manage its sales process, my recommendation is to disclose relevant enforcement settlements involving that organization in a factual, balanced way and through the proper channel, including the FDD wherever it is required or permitted. I would pair that disclosure with a documented review of the FSO’s people, presentations, and practices. Counsel should determine what the law requires, and management should decide how best to protect the business.

The people selling your franchises set the expectations on which every franchise relationship begins, and their conduct and relevant history deserve your attention. When there is a reasonable question about what a buyer should know, work with counsel to provide a clear explanation before the investment is made. That approach best serves the franchisor, the prospective franchisee, and the system being built.

Michael Seid is Managing Director of MSA Worldwide. You can reach him at mseid@msaworldwide.com or 860-523-4257.

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[1] FTC, “Premier Martial Arts Franchisor and its Former Franchise Sales Organization Settle FTC Charges that the Companies Made Deceptive Claims and Violated the Franchise Rule,” Oct. 5, 2026. https://www.ftc.gov/news-events/news/press-releases/2026/10/premier-martial-arts-franchisor-its-former-franchise-sales-organization-settle-ftc-charges-companies

[2] Complaint, FTC v. Premier Franchising Group, LLC and Franchise Fastlane, LLC, No. 3:26-cv-00487 (E.D. Tenn.), filed Oct. 5, 2026, paragraphs 11 and 195–197. https://www.ftc.gov/system/files/ftc_gov/pdf/PFG-Complaint.pdf

[3] FTC case page, “PFG/Unleashed Brands,” status pending, updated Oct. 5, 2026: https://www.ftc.gov/legal-library/browse/cases-proceedings/pfgunleashed-brands ; proposed FastLane stipulated order, Findings paragraph 3: https://www.ftc.gov/system/files/ftc_gov/pdf/StipulatedOrder-FFL.pdf . Status as of Oct. 6, 2026.

[4] Proposed FastLane stipulated order, Findings paragraph 6 and Sections I–II. https://www.ftc.gov/system/files/ftc_gov/pdf/StipulatedOrder-FFL.pdf ; 16 C.F.R. § 436.5(c) (Item 3). Whether a particular individual is subject to an effective order and must disclose it requires analysis of that person’s role, notice, the entered order, and applicable law.