A disclosure document should contain details of the relevant intellectual property rights which the franchisor will license to the franchisee. In most European jurisdictions, it is legally permissible to grant a licence to unregistered rights, including unregistered trade marks.
Full Answer
What is a Franchise Disclosure Document used for?
The purpose of the Franchise Disclosure Document (FDD) is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision.
How does a franchise agreement work?
A franchise agreement is a contract under which the franchisor grants the franchisee the right to operate a business, or offer, sell, or distribute goods or services identified or associated with the franchisor's trademark.
How does an international franchise work?
It typically involves a franchisor who grants to an individual or company (the franchisee), the right to run a business selling a product or service under the franchisor's successful business model and identified by the franchisor's trademark or brand.
How does a franchise agreement work UK?
The franchisor and franchisee must use a licence (franchise agreement) to use the trademark, which must be adopted and paid for by all franchisees. The franchisee must be able to sell the business on to a third party with the benefit of the goodwill derived from developing the business over time.
What are the 3 conditions of a franchise agreement?
Franchise agreements vary between different franchises, but these seven areas should be addressed in every franchise agreement.Use of Trademarks.Location of the Franchise.Term of the Franchise.Franchisee's Fees and Other Payments.Obligations and Duties of the Franchisor.Restriction on Goods and Services Offered.More items...
What are the three types of franchise agreements?
When it comes to structuring franchise arrangements, there are typically three different types of franchisor and franchisee agreements.Single-Unit Franchise Agreement. ... Area Development Agreement. ... Master Franchise Agreement.
What are the documents needed to become an international franchise?
There are two legally required documents you should become very familiar with before franchising your business: the Franchise Disclosure Document, and the Franchise Agreement.
What is international franchise agreement?
The International Franchise Agreement is usually defined as a contract whereby the franchisor grants the franchisee (based in another country), in exchange for direct or indirect financial compensation, the right to exploit a package of industrial or intellectual property rights relating mainly to know-how and ...
What are the 4 types of franchising?
The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.
Who pays the franchise fee?
Key Takeaways. Franchise fees are any costs that a franchisee must pay to the franchisor to use its brand and resources. These can include large initial payments and ongoing percentages of revenue. The FTC requires an initial fee of at least $500 to consider a franchise agreement valid.
Do franchise owners take a salary?
Franchise owners can pay themselves a salary or depending on their business entity, they may be able to take a draw from their accumulated equity.
What happens if you break a franchise agreement?
A franchisee that closes without terminating the franchise agreement is at risk of being liable to the franchisor for “lost future profits,” or the money the franchisor would have earned if the franchisee had stayed open for the life of the franchise agreement.
Do franchise owners take a salary?
Franchise owners can pay themselves a salary or depending on their business entity, they may be able to take a draw from their accumulated equity.
Who gets the profit in a franchise?
The franchisee will make money through profits gained through sales. Although a percentage of this will be paid to the franchisor through royalty fees, the successful franchisee can make a significant amount of money by selling the brand's products or services.
What is usually included in a franchise agreement?
A franchise agreement will usually contain the franchisee's obligations relating to performance criteria, payment of fees (royalties, marketing fees, training fees, transfer fees, termination fees, utility levies etc.), marketing, reporting, training, supply of products and services, territory etc.
Who gets the money in a franchise?
A franchisor makes money from royalties and fees paid by the franchise owners. A franchise owner makes money through profits received from sales and service transactions. This is generally the left-over amount of money received from revenue after overhead costs are taken out.
What is a franchise disclosure document?
The Franchise Disclosure Document (FDD) is a legal document that the Federal Trade Commission (FTC) requires franchisors to provide to prospective franchisees before selling a franchise. The FDD is divided into twenty-three sections or “Items”, each of which require a franchisor to disclose certain information to assist prospective franchisees in making a well-informed decision before investing in the franchise. This information concerns the franchisor, the individuals and entities associated with the franchisor, the franchise opportunity, the fees charged by the franchisor, the franchisor-franchisee relationship, and other information about the offering. This document can be overwhelming to prepare on your own, so it is important to have a skilled franchise attorney by your side to help you with this process.
How Does a Lawyer Help with Drafting a Franchise Disclosure Document?
Franchise lawyers are vital to ensuring compliance with two main principles that apply in the drafting of a F DD. The first principle is that the FDD must be drafted in plain English. While this does not prohibit the use of artful language in making the necessary disclosures, there is a fine line between artfully drafted and overly descriptive FDDs. Our team is well informed of where certain language should and should not be used, and could save a franchisor the time, expense, and headaches associated with an improperly drafted disclosure document.
How many items are required in a franchise?
§436, a franchisor selling a franchise must include all twenty-three Items in its FDD. The purpose of this requirement was to supplant the old timey sale-practices of franchisors, who could play fast and loose with the truth to the detriment of vulnerable prospective franchisees. While the contents of each Item vary with each franchisor, each FDD is required to contain the following Items in this order:
What is the second principle of FDD?
The second principle is that an FDD should disclose only the information required under each of the twenty-three items —nothing more. Innocent candor resulting in over-disclosure of information can sometimes hinder the FDD registration process and ultimately hurt the franchisor.
Why does the FDD matter?
It’s important that you fully understand what the franchise opportunity is and it’s also important for the franchisor gets to give you as much information about who they are as possible so you can see if you will be the right fit for the franchise system and vice versa.
What is in the FDD?
The FDD contains 23 items that are required by the FTC. Those items help a potential buyer understand the franchise offering and to compare multiple offerings. Here are the list of 23 items in every FDD: