How to Write Your Franchise Disclosure Document
- Description of the franchise Here you need to provide a history of your business, as well as a description of any affiliates, predecessors or parent companies.
- Your business experience ...
- Current or past litigation ...
- History of bankruptcy ...
- Fees required to run a franchise ...
- Restrictions regarding product and service sources ...
- Obligations of the franchisee ...
- Financing options ...
Full Answer
What must be in a Franchise Disclosure Document?
While the contents of each Item vary with each franchisor, each FDD is required to contain the following Items in this order:Item 1: The Franchisor, and any Parents, Predecessors, and Affiliates.Item 2: Business Experience.Item 3: Litigation.Item 4: Bankruptcy.Item 5: Initial Fees.Item 6: Other Fees.More items...
What 3 things are typically included in 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...
How many items are in a Franchise Disclosure Document?
Every franchisor is required to include information on 23 specific items in their FDD. This is the meat of the document.
What is the purpose of a Franchise Disclosure Document?
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 do you create a franchise agreement?
Fundamental Provisions of the Franchise AgreementLocation. This provision defines the franchisee's territorial limits, the area the franchisee has the right to operate and outlines its exclusive rights (if necessary).Site selection and development. ... Royalties. ... Franchise validity. ... Fees. ... Training support. ... Operations. ... Trademark.More items...•
What is a franchise agreement example?
A franchise agreement incorporates the rights and obligations of the franchisor and franchisee to license and sell a company's intellectual property and licensing rights. Examples of businesses that use franchise agreements include: Convenience stores. Fast food and chain restaurants.
When must the disclosure document be delivered according to the FTC rule?
Timing: Franchisors must provide the FDD to prospective franchisees at least fourteen days prior to them signing the franchise agreement, and the franchisee is entitled to receive the completed Franchise Agreement at least seven days prior to signing it.
What is the FDD disclosure rule?
14-Day Disclosure Period – Under the FTC's Federal Franchise Rule, you must disclose your FDD to a prospective franchisee no less than 14 calendar days prior to the franchisee signing any agreement with you or your affiliate or paying any fee to you or your affiliate.
What is Article 21 of the Franchise Disclosure Document?
Item 21 of the Franchise Disclosure Document (FDD) requires franchisors to disclose certain financial statements that reflect their financial condition. This requirement further assists prospective franchisees in the investment-decision-making process.
Who gets an FDD?
An FDD is a legal document that franchisors must present to franchisees before they complete their purchase. This document outlines 23 items that must be disclosed to franchisees including fees, the legal relationship, and the history of the company.
Who must be disclosed with the FDD?
Under Item 3 of the Franchise Disclosure Document (FDD), a franchisor is required to disclose certain current and past lawsuits, or “actions,” that the franchisor or its predecessors, affiliates, parents, or individuals disclosed in Item 2 were involved in or subject to.
How important is a disclosure documents before entering franchising?
Why is FDD Important? The FDD lets the prospective franchisees analyze and decide if they are to make the purchase or not. This also provides an opportunity to know more about the franchisor and clear up some of the little known points about the business.
What is a standard franchise agreement?
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.
What are the basic requirements of the Franchise Rule?
The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.
What is the most important key subject in the franchise agreement?
Trademark and intellectual property One of the most important elements of a franchise agreement is the right to use the franchisor's trademark. The franchisor must register the trademark and have the exclusive right to use it.
What are the common franchise terms?
Here are a few common franchise terms that you should be aware of. A Franchisor is the owner of the franchise brand and business system. Franchisors can license their franchise to various franchisees. A Franchisee is a person or group who licenses the right to carry out business under a particular franchise trademark.
First-time franchisors need to enlist the help of qualified professionals to ensure the FDD is transparent, informative and appealing to prospective franchise owners
If a company is interested in selling a franchise, the Franchise Disclosure Document (FDD) is perhaps the most important aspect to understand. This document, which is regulated by the Federal Trade Commission (FTC) and is required for the sale of a franchise, details the brand’s operations, fees, rules, turnover rates, renewal terms and more.
By Luca Piacentini
If a company is interested in selling a franchise, the Franchise Disclosure Document (FDD) is perhaps the most important aspect to understand. This document, which is regulated by the Federal Trade Commission (FTC) and is required for the sale of a franchise, details the brand’s operations, fees, rules, turnover rates, renewal terms and more.
Description of the franchise
Here you need to provide a history of your business, as well as a description of any affiliates, predecessors or parent companies.
Your business experience
This includes both biographical and professional information about you and your executive team. This section should help make potential franchisees confident in your ability to oversee a franchise.
Current or past litigation
If you, your company or any of the company’s principals or directors are facing litigation or have faced litigation in the past, you must disclose it.
History of bankruptcy
You must disclose if you, your company or any officers or directors have filed for bankruptcy in the past.
Fees required to run a franchise
This includes the franchise fees, as well as all other fees and expenses required to open and operate a franchise within the first three months.
Restrictions regarding product and service sources
You’ll want to make sure that what your franchisee is selling meets your standards — so list your designated suppliers.
Financing options
This is only if you are offering the franchisee assistance with financing through a lending program.
What is the FDD for franchising?
1. Basics of the Franchise Disclosure Document (FDD) After doing some research and identifying a few franchisors you want to move forward with in the buying process, you’re ready to make contact. This is when you will receive the FDD, a very important document in becoming a franchisee. 2.
Do states go beyond the federal franchise rule?
Some states go beyond the Federal Franchise Rule in vetting franchises that operate within their borders . Here's background on the states that require an extra step or two before franchises can court franchisees.
What is a Franchise Disclosure Document?
An FDD is a legal document that franchisors must present to franchisees before they complete their purchase. This document outlines 23 items that must be disclosed to franchisees including fees, the legal relationship, and the history of the company.
What is item 1 of the Franchise?
Item 1: The Franchisor and Any Parents, Predecessors, and Affiliates: A description of the company and its history.
What is the 9th item in a franchise agreement?
Item 9: Franchisee’s Obligations: The franchisor must disclose the franchisee’s obligations under the franchise agreement. This is presented as a reference table and includes a summary of all legal obligations to include (but not limited to) site selection, opening obligations, and any obligations upon termination of the franchise agreement.
How long do you have to review FDD?
To franchisees, fully utilize your 14-day window to examine the FDD and review it with an attorney if possible. If something seems unclear or potentially suspicious, ask for clarification — and don’t settle until your concerns have been dealt with. You are making a huge decision by purchasing into a Franchise and you want to make sure that your investment will pay off.
How often do you need to update FDD?
An FDD must be updated at the very least, annually, within 120 days of the franchisor’s fiscal year-end. If changes occur throughout the year that impact the FDD, it must be updated on a quarterly basis as soon as that information changes. This prevents misleading information from being disseminated to potential Franchisees.
Why do franchisors need to ensure all ducks are in a row?
If you’re a franchisor, you’ll want to ensure that all of your legal ducks are in a row so you can present your best self to new franchisees.
Is it good to buy a franchise?
Purchasing a franchise is an excellent way to become a business owner while buying into an established brand. You’ll receive business guidance, marketing assets, training, and much more. However, while this is a great opportunity for you as an entrepreneur, you’ll want to make sure that you are making a sound business decision and are protected throughout the process.
What Is a Franchise Disclosure Document (FD?
- The franchise disclosure document (FDD) is a legal disclosure document that must be given to i…
The FDD was previously known as the Uniform Franchise Offering Circular (UFOC) before it was revised by the Federal Trade Commission (FTC), the country's consumer protection agency, in July 2007. Franchisors had until July 2008 in order to comply with the revisions. The FDD has also be… - The franchise disclosure document (FDD) provides a clear picture of how the business relations…
Franchises can be very different in the support they offer in return for licensing fees.
Understanding a Franchise Disclosure Document (FD
- The FDD outlines comprehensive information about the roles of both parties involved in the fran…
A franchise is a license that a party (the franchisee) acquires to allow them to have access to a business's (the franchisor) proprietary knowledge, processes, and trademarks. This gives the franchisee the ability to sell a product or provide a service under the business's name. In exchan…
Requirements for a Franchise Disclosure Document (FD
- The FDD is divided up into 23 sections and the potential franchisee must review each of them be…
According to the FTC, franchisors have an obligation to provide the franchisee with the FDD at least 14 days before it needs to be signed or before any initial money is exchanged. The franchisee has a right to a copy of the FDD after the franchisor has received the application and …
Sections of the Franchise Disclosure Document (FD
- The FDD contains information essential to potential franchisees about to make a significant inve…
The franchisor and any parents, predecessors, and affiliates: This section establishes how long the franchisor has been operating. - Business experience: Outlines the experience of the executive team running the franchise system.
Litigation: Covers pending actions, material actions, and prior actions against the franchise.