The term franchise FDD stands for franchise disclosure document. This is one of the main documents for any franchise company. It can be prepared by franchisors with the help of Franchise Disclosure Document (FDD) Template products or by specialized franchise consultancy or legal firms.
The franchise FDD document contains 23 items. The information contained in each one of these items discloses specific details about the franchisor. The aim of the franchise FDD is to provide potential franchisees with sufficient information about the franchisor so that they can make an informed decision about their franchise purchase.
Franchise disclosure documents must comply with the rules set by the Federal Trade Commission (often referred to as FTC rules). There are also 13 U.S states with their own franchising rules and every franchise registered in any of these states must have a franchise FDD compliant with the state franchise laws as well as with the FTC rules.
Description of the Franchise FDD Items
- Item 1. Background information.
- tem 2. Background information of top management and sales employees of the franchise.
- tem 3. Lawsuits involving the franchisor, its predecessors, or any of the employees listed under Item 2.
- Item 4. Bankruptcy information for the franchise, its predecessors or any of the employees listed under Item 2.
- Item 5. Initial fees and payments for the franchisees.
- Item 6. Occasional fees.
- Item 7. The required initial investment required by franchisees.
- Item 8. Lists of approved suppliers and supplier restrictions.
- Item 9. Franchisee obligations.
- Item 10. Financial agreements offered by the franchisor.
- Item 11. Franchisor’s obligations.
- Item 12. Territory protection.
- Item 13. Trademark protection and management.
- Item 14. Patents and copyright protection and management.
- Item 15. Obligations of the franchisees regarding their involvement in the franchise unit business operations.
- Item 16. Goods and/or services restrictions.
- Item 17. Term, renewal, transfer, and termination provisions.
- Item 18. Involvement of a public figure with the franchise system.
- Item 19. Performance representations (optional).
- Item 20. Information about the number of franchised units (including sold, closed, or bought back from franchisees) for the last three years.
- Item 21. Franchisor financial statements.
- Item 22. Franchise agreements (franchise agreement, confidentiality agreement, and any other applicable agreements between the franchisor and the franchisees).
- tem 23. Franchise FDD receipt.
A franchise FDD is a bulky piece of documentation. As it becomes obvious from the long list above, getting it done may require a lot of time and special legal or finance knowledge. Franchisors who are unable to complete their franchise FDD all by themselves may seek professional help. Consultancy services costs may range from several hundred to several thousand dollars. Another option is the use of a Franchise Disclosure Document (FDD) Template. This is a much more affordable solution. Provided that a professionally written and FTC Compliant template is used, franchisors can have a legally bulletproof franchise FDD in just a day or two.