What is the Franchise Disclosure Document?



The Franchise Disclosure Document (“FDD”) is a legal disclosure document that required to be provided to prospective franchise purchasers. The document contains information essential to potential franchisees about the franchise. Every FDD must include the following 23 disclosure items:


Item 1: The Franchisor and any Parents, Predecessors, and Affiliates Item 1 requires franchisors to disclose corporate information, including information about parent companies and affiliates of the franchisor. These disclosures are designed to provide franchisees with information about the corporate structure of the franchisor, any affiliated companies, and any predecessors such as a former owner of the franchise system. Item 2: Business Experience Item 2 requires franchisors to disclose information about anyone with management responsibility. The information here provides franchisees with information about management, sales, and the franchisee support team members including each members’ 5-year employment history.

Item 3: Litigation Item 3 requires franchisors to disclose information about litigation involving the franchisor, franchisor's affiliates, predecessors, and/or individual management team members.

Item 4: Bankruptcy Item 4 requires franchisors to disclose the bankruptcy history of the franchisor, the franchisor's affiliates, predecessors, and/or individual management team. Item 5: Initial Fees Item 5 requires franchisors to disclose all upfront fees that a franchisee must pay to the franchisor before the franchisee opens the franchised business. Item 6: Other Fees

Item 6 requires franchisors to disclose all other fees that a franchisee must pay to the franchisor throughout the terms of the franchise agreement. These fees typically include on-going royalties, marketing, technology, training, and other fees specific to the franchisor.

Item 7: Estimated Initial Investment Item 7 requires franchisors to provide an estimate of the cost for a franchisee to establish and open the franchised business. This estimate must include everything from build-out costs to reserve capital for the first three months of operation. Item 8: Restrictions on Sources of Products and Services Item 8 requires franchisors to disclose the products and supplies the franchisee must purchase from the franchisor or the franchisor's designated suppliers. The franchisor must also disclose revenue and rebates that the franchisor earned from selling source-restricted supplies and products to franchisees. Item 9: Franchisee’s Obligations Item 9 requires franchisors to disclose the franchisee's obligations under the franchise agreement. This disclosure must include all legal obligations ranging from site selection and opening to default provisions and the franchisee's obligations upon termination of the franchise agreement. Item 10: Financing Item 10 requires franchisors to disclose whether the franchisor offers financing. Item 11: Assistance, Advertising, Computer Systems, and Training Item 11 requires franchisors to disclose the type of assistance and training that the franchisor will provide to the franchisee, advertising requirements imposed on the franchisee, and the required computer and software systems that the franchisee will be required to purchase and utilize. Item 12: Territory Item 12 requires franchisors to disclose whether the franchisee will be awarded a protected territory, whether the territory is protected, how the territory will be determined, and instances where the franchisor reserves the right to operate within the franchisees territory. Item 13: Trademarks Item 13 requires franchisors to disclose information about the trademarks of the franchise , including, whether or not they are registered with the United States Patent and Trademark Office, the registration status, and whether or not the franchisor has notice of any conflicting trademarks or disputes. Item 14: Patents, Copyrights, and Proprietary Information Item 14 requires franchisors to disclose information about any patents, copyrights, and other proprietary information related to the franchise. Item 15: Obligation to Participate in the Actual Operation of the Franchise Business Item 15 requires franchisors to disclose what obligations, if any, the individual franchisees / franchisee owners must have in the day-to-day operations of the franchised business including whether or not they must work in the franchised business on a full time basis. Item 16: Restrictions on What the Franchisee May Sell Item 16 requires franchisors to disclose its control over what a franchisee may or may not sell as a part of the franchised business. Item 17: Renewal, Termination, Transfer, and Dispute Resolution Item 17 requires franchisors to disclose and summarize the legal rights and obligations related to the renewal, termination, and transfer of the franchised business. This item must also include a summary as to how legal disputes must be resolved between the franchisor and franchisee. Item 18: Public Figures Item 18 requires franchisors to disclose if there are any celebrities or other public figures that have been hired to promote the franchise system. Item 19: Financial Performance Representations Item 19 requires franchisors to disclose whether or not it is making any financial performance representations - any written or oral statement or communication made by a franchisor to a franchisee or the public about the actual or potential financial performance of a franchised business. If it makes any such representations, the franchisor must provide specific details. Item 20: Outlets and Franchisee Information Item 20 requires franchisors to disclose, in five separate tables, a summary of the franchised and corporate outlets over the prior three years and a projection as to future opening in the next year. Item 21: Financial Statements Item 21 requires franchisors to disclose and include copies of the franchisor's financial statements. Item 22: Contracts Item 22 requires franchisors to list and attach all contracts that a franchisee must sign with the franchisor. These contracts include a sample of the franchisor's standard franchise agreement and related agreements such as a development agreement, site selection agreement, release agreement, and others. Item 23: Receipts Item 23 requires franchisors to include two copies of the receipt page. The receipt page is the page that a franchisee must sign to confirm and prove the proper disclosure and delivery of the FDD.


If you are interested in franchising your business, schedule your legal consultation today. Cooper Legal is happy to assist.



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