Commonly called an FDD, a Franchise Disclosure Document is required by the federal Franchise Rule (16 CFR Parts 436 and 437) to contain the following twenty-three (23) items, in the following order:
- The Franchisor and any Parents, Predecessors, and Affiliates
- Business Experience
- Initial Fees
- Other Fees
- Estimated Initial Investment
- Restrictions on Sources of Products and Services
- Franchisee's Obligations
- Franchisor's Assistance, Advertising, Computer Systems, and Training
- Patents, Copyrights, and Proprietary Information
- Obligation to Participate in the Actual Operation of the Franchise Business
- Restrictions on What the Franchisee May Sell
- Renewal, Termination, Transfer, and Dispute Resolution
- Public Figures
- Financial Performance Representations
- Outlets and Franchisee Information
- Financial Statements
Further, the Franchise Rule requires that each of the foregoiung twenty-three (23) items contain specific information. What follows is a discussion of some of the most notable required items.
5. Initial Fees
A franchisor is required to dislcose the intiial requird fees and any condition under which such fees are refundable.
6. Other Fees
A franchisor must disclose the other, non-initial or recurring fees that a franchise is obligated to pay.
7. Estimated Initial Investment
A range, i.e. minimum and maximum, regarding the capital outlay required to begin operations.
8. Restrictions on Sources of Products and Services
Can the Franchisee purchase goods and services to run the franhcise from any supplier? Or must the franchisee purchase goods or services only from the franchisor or its designees?
9. Franchisee's Obligations
An FDD must contrain an itemized table of all the Franchisee's obligations pursuant to the franchise agreement.
In which gepgraphic areas may the Frnachisee operate the franchise? Perhaps more impiortantly, in whuich geographic areas is the Franchisee prohibited from operating the franchise?
This brief overview of some important considerations associated with franchise disclosure documents is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.