Basics - The Franchise Disclosure Document (FDD)

Basics - The Franchise Disclosure Document (FDD)

The Franchise Disclosure Document (FDD) is a format for disclosing franchisor information to prospective franchisees. The purpose of the FDD is to protect the public by providing information about the franchise company.

The FDD format was adopted by the North American Securities Administrators Association (NASAA) in 1993, which was approved by the Federal Trade Commission (FTC) in 1995. The "registration states", which require franchisors to use the FDD format (versus the FTC Rule format) include, California, Illinois, Indiana, Maryland, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia and Washington. Because the registration states do not accept the FTC Rule format which is less stringent than the FDD format, the usage of the FDD format is most widely used. The FTC requires that a FDD or FTC disclosure document be used in all non-registration states.

There are 23 categories of information that must be provided by the franchisor to the prospective franchisee at least 10 business days prior to the execution of the franchise agreement. These categories include:

1. Cover Page
2. The Franchisor, Its Predecesors and Affiliates
3. Business Experience
4. Litigation
5. Bankruptcy
6. Initial Franchise Fee
7. Other Fees
8. Initial Investment
9. Restrictions on Sources of Products
10. Franchisee's Obligations
11. Financing
12. Franchisor's Obligations
13. Territory
14. Trademarks
15. Patents, Copyrights, and Proprietary Information
16. Obligation to Participate in the Actual Operation of the Franchised Business
17. Restrictions on What the Franchisee May Sell
18. Renewal, Termination, Transfer, and Dispute Resolution
19. Public Figures
20. Earnings Claims
21. List of Franchise Outlets
22. Financial Statements
23. Contracts
24. Receipt

© Franchise.com 2003