What is the Franchise Disclosure Document (FDD)?
What is the Franchise Disclosure Document? The Franchise Disclosure Document, also referred to as an "FDD," is a legal document and prospectus that the FTC requires franchisors to disclose to prospective franchise buyers 14 days before selling a franchise or receiving any fees.
What is an FDD and why is it important?
An FDD is intended to give candidates the information they need to make a wise decision on whether or not to buy a particular franchise. The FDD (previously called the Uniform Franchise Offering Circular, or UFOC) became mandatory July 1, 2008, as part of the FTC's amendment of its 1978 Franchise Rule.
What is the role of the franchise development director (FDD)?
The franchisor may also provide support through newsletters, a toll-free telephone number, a website, or scheduled workshops or seminars. Because franchises can be so varied in their approach, the role of the FDD is to explicitly lay out what will and will not be provided to the franchisee and how the relationship will work going forward.
When do I get an FDD?
When do you get an FDD? Under the amended Rule, franchisors must provide an FDD to candidates "at least 14 calendar days before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate in connection with the proposed franchise sale."
What is FDD in franchising?
The FDD discloses information but does not create a legal obligation. The franchise agreement is a binding legal contract that is signed by both the franchisor and franchisee. It is an agreement to do something (open and operate a franchise) and creates legal obligations. The franchise agreement controls the relationship between ...
What is a franchise disclosure document?
The Franchise Disclosure Document (FDD) is a document that provides information about the franchisor, the franchise system, and the franchise agreement. The FDD’s primary purpose is to inform you, as a potential buyer, about the franchise, your investment, and the business you are purchasing. It is divided into 23 sections called “Items” ...
How many sections are there in the FDD?
It is divided into 23 sections called “Items” plus a list of exhibits. The law requires the franchisor to provide the FDD to you to help you better understand the franchise agreement and to learn important information about the franchisor and the franchise system. Important note: The FDD and the franchise agreement, ...
What is item 5 in franchise?
Item 5 lists all fees that are paid to the franchisor or its affiliates before the franchised business is open. These generally include initial franchise fees, any territory fees, training fees, software fees and fees for inventory purchases. Item 5 only lists fees paid to the franchisor or its affiliates. Item 7 and Item 8 will list fees paid ...
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.
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 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:
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.
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:
