What Is the Franchise Disclosure Document?
The Franchise Disclosure Document (FDD) is a legal document that franchisors must furnish to franchisees, as regulated by the Federal Trade Commission. This document must be presented at least 10 days prior to the signing of the Franchise Agreement. The FDD contains material information about a franchise operation and is designed to help franchisees analyze the merits of a franchise system.
Regardless of industry, size, or any other factor, the FDD follows the same format, which contains the following categories:
- The Franchisor and Any Predecessors
- Litigation History
- Bankruptcy (i.e., any franchisees who may have filed)
- Listing of the Initial Franchise Fee and Other Initial Payments
- Other Fees and Expenses
- Statement of Franchisee's Initial Investment
- Obligations of Franchisee to Purchase or Lease from Designated Sources
- Obligations of Franchisee to Purchase or Lease in Accordance with Specifications or from Authorized Suppliers
- Financing Arrangements
- Obligations of the Franchisor; Other Supervision, Assistance or Services
- Exclusive/Designated Area of Territory
- Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols
- Patents and Copyrights
- Obligations of the Franchisee to Participate in the Actual Operation of the Franchise Business
- Restrictions on Goods and Services Offered by Franchisee
- Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
- Arrangements with Public Figures
- Actual, Average, Projected or Forecasted Franchise Sales, Profits or Earnings
- Information Regarding Franchises of the Franchisor
- Financial Statements
- Contracts
- Acknowledgment of Receipt by Respective Franchisee
More articles from AllBusiness.com:
- The New Franchisor’s Checklist for Franchising a Business
- Franchising 101: The Basic Terms, Tips, and Facts You Need to Get Started
- Franchise Research: Talking to Existing Franchisees
- Franchise Research Basics: How to Compare Similar Opportunities
- Buying a Franchise? The Importance of Item 19 in the Franchise Disclosure Document
The Franchise Disclosure Document—a warning
One important thing to note is that while a disclosure document is required by law, no legal body has reviewed its contents to ensure its accuracy, which is why retaining a franchise lawyer may work in your favor in the long run.
