Franchise FDD Overview
The term franchise FDD stands for
franchise disclosure document. This is one of the main documents for
any franchise company. It can be prepared by franchisors with the help
of Franchise
Disclosure Document (FDD) Template products or by specialized
franchise consultancy or legal firms.
The franchise FDD document contains 23 items. The information contained
in each one of these items discloses specific details about the
franchisor. The aim of the franchise FDD is to provide potential
franchisees with sufficient information about the franchisor so that
they can make an informed decision about their franchise purchase.
Franchise disclosure documents must comply with the rules set by the
Federal Trade Commission (often referred to as FTC rules). There are
also 13 U.S states with their own franchising rules and every franchise
registered in any of these states must have a franchise FDD compliant
with the state franchise laws as well as with the FTC rules.
Description of the Franchise FDD
Items
- Item 1. Background information.
- Item 2. Background information of top
management and sales employees of the franchise.
- Item 3. Lawsuits involving the franchisor, its
predecessors, or any of the employees listed under Item 2.
- Item 4. Bankruptcy information for the
franchise, its predecessors or any of the employees listed under Item 2.
- Item 5. Initial fees and payments for the
franchisees.
- Item 6. Occasional fees.
- Item 7. The required initial investment
required by franchisees.
- Item 8. Lists of approved suppliers and
supplier restrictions.
- Item 9. Franchisee obligations.
- Item 10. Financial agreements offered by the
franchisor.
- Item 11. Franchisor’s obligations.
- Item 12. Territory protection.
- Item 13. Trademark protection and management.
- Item 14. Patents and copyright protection and
management.
- Item 15. Obligations of the franchisees
regarding their involvement in the franchise unit business operations.
- Item 16. Goods and/or services restrictions.
- Item 17. Term, renewal, transfer, and
termination provisions.
- Item 18. Involvement of a public figure with
the franchise system.
- Item 19. Performance representations (optional).
- Item 20. Information about the number of
franchised units (including sold, closed, or bought back from
franchisees) for the last three years.
- Item 21. Franchisor financial statements.
- Item 22. Franchise agreements (franchise
agreement, confidentiality agreement, and any other applicable
agreements between the franchisor and the franchisees).
- Item 23. Franchise FDD receipt.
A franchise FDD is a bulky piece
of documentation. As it becomes obvious from the long list above,
getting it done may require a lot of time and special legal or finance
knowledge. Franchisors who are unable to complete their franchise FDD
all by themselves may seek professional help. Consultancy services
costs may range from several hundred to several thousand dollars.
Another option is the use of a Franchise Disclosure Document (FDD)
Template. This is a much more affordable solution. Provided that a
professionally written and FTC Compliant template is used, franchisors
can have a legally bulletproof franchise FDD in just a day or two.
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