What you need to know about the Franchise Disclosure Document or FDD. An FDD is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States. It was originally known as the Uniform Franchise Offering Circular (UFOC), prior to revisions made by the Federal Trade Commission in July 2007.
Why do I need to know about a Franchise Disclosure Document?
Actually you don’t need to know about the FDD until you are ready to sign an agreement with a franchise. Franchises are mandated by the Federal Trade Commission to present you with an FDD at least two weeks prior to you signing an agreement with them.
Why is an Franchise Disclosure Document important to me?
If you are ready to sign an agreement with a franchise you need to make sure you do all your due diligence to make an informed decision. Buying a business could be one of the largest purchases you make in your entire life.
What does the Franchise Disclosure Document contain?
The Franchise Disclosure Document can be overwhelming, but it contains all of the pertinent information you need to know about a franchise. Since it is packed with so much information, you may want a good franchise attorney to help you sort through it. The information in an FDD will include:
- Company information (item 1)
- Franchise executive background (item 2)
- Litigation details (item 3)
- Bankruptcy details (item 4)
- Fee and investment information (item 5, 6, 7)
- Restrictions on sourcing products (item 8)
- Franchise owners obligations (item 9)
- Financing options (item 10)
- Franchisor’s assistance and support (advertising, training, etc.) (item 11)
- Territory rules (item 12)
- Trademarks and copyright registrations (item 13, 14)
- Franchise owners participation obligation (item 15)
- Franchise owner selling restrictions (item 16)
- Renewal terms, termination and transfer rules, and dispute resolution (item 17)
- Public figures (disclosure of public people’s involvement) (item 18)
- Financial performance – potential earnings (item 19)
- System wide outlet (total units operated) (item 20)
- Financial statements (item 21)
- Contracts and receipts (item 22, 23)