What is a Franchise Disclosure Document (“FDD”)?

A Franchise Disclosure Document (FDD) is a complex legal document that the Federal Trade Commission (FTC) requires franchisors to provide to potential franchisees before entering a formal franchise agreement.  Franchise Disclosure Documents protect potential franchise buyers by providing them with comprehensive information about the franchise up front.  The information in Franchise Disclosure Documents helps potential franchisees make informed decisions and choose a franchise that makes sense for their specific needs.

The FTC requires franchisors to give potential franchisees “material information, including background information on the franchisor, the costs of entering into the business, the legal obligations of the franchisor and the franchisee, statistics on franchised and company-owned outlets, and audited financial information.”  Additionally, if franchisors choose to make any representations about financial performance, the FTC requires that the franchisors make certain disclosures and provide substantiation for those representations.  This ensures that the representations made are realistic and not misleading to potential franchisees.

Franchise Disclosure Documents contain information on 23 different subjects, including:

  • The Franchisor, its Predecessors, and its Affiliates
  • Business Experience
  • Litigation
  • Bankruptcy
  • Initial Franchise Fee
  • Other Fees
  • Initial Investment
  • Restrictions on Sources of Products and Services
  • Franchisee’s Obligations
  • Financing
  • Franchisor’s Obligations
  • Territory
  • Trademarks
  • Patents, Copyrights and Proprietary Information
  • Obligation to Participate in the Actual Operation of the Franchise Business
  • Restrictions on What the Franchisee May Sell
  • Renewal, Termination, Transfer, and Dispute Resolution
  • Public Figures
  • Earnings Claims
  • List of Outlets
  • Financial Statements
  • Contracts
  • Receipt

Franchise Disclosure Documents can be hundreds of pages long and the information is often written in complex legalese that can be difficult to decipher. It’s important that prospective franchise owners hire an attorney specializing in franchise law to review the FDD. Franchise law specialists know what to look for in the Franchise Disclosure Document and have the experience necessary to guide you in your new franchise investment.

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