"A franchise disclosure document (FDD) is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States."
Learn about the legal requirements of franchising, including franchise disclosures, trademarks, and franchise agreements.
Franchise Disclosure Document (FDD): A legal document that franchisors must provide to potential franchisees that includes important information about the franchise opportunity, including financial disclosures, franchise fees, and obligations of both parties.
Franchise agreement: A legally binding contract between a franchisor and franchisee that outlines the terms and conditions of the franchise relationship, including the obligations and responsibilities of each party.
Intellectual property: Covering trademark, copyright, patent, and trade secret laws which are critical to protect the brand and business model of a franchise system.
Territory restrictions: Franchisors may establish territorial restrictions that limit the ability of franchisees to operate in certain geographic areas or compete with other franchisees.
Advertising funds: Franchise systems typically require franchisees to contribute to national or local advertising funds to support the franchise brand and growth.
Operations manual: Outlines the operating procedures, policies, and standards that franchisees are required to follow and maintain in order to operate the business successfully and consistently.
Training programs: Provide initial and ongoing training to franchisees to ensure they can operate the business to the franchisor’s standards.
Termination and renewal: Delineates the process for ending the franchise relationship and options for renewal, such as additional terms, fees, or other requirements.
Non-compete clauses: Prevent franchisees from competing with the franchise system or sharing confidential information for a specified period of time after the franchise relationship has ended.
Franchise registration and compliance: Franchisors must comply with state and federal laws requiring them to register their franchise offering in certain states and adhere to specific regulations regarding advertising, disclosure, and dispute resolution mechanisms.
Multi-unit franchisees: Considerations when selling additional territories or opening additional franchises.
International franchising: Understanding the unique challenges and legal issues associated with franchising in foreign countries.
Franchise in Industries: The legal requirements in different franchise industries like Fast food, service-oriented, consulting, travel, automobile.
Trademark laws: The laws related to Trademark, including registration, protection, and use.
The role of franchise consultants: The legal requirements when working with third-party franchise consultants who offer advice and assistance in finding and evaluating franchise opportunities.
Registration requirements: Some states, provinces or countries require franchises to be registered with regulatory authorities before they can offer franchise opportunities. The registration requirements may include detailed disclosure documents, registration fees and other legal forms.
Disclosure requirements: Franchise laws often require franchises to provide detailed disclosure documents to potential franchisees. These documents must contain information about the franchisor, the franchise opportunity, financial statements, and other vital information to help potential franchisees make an informed decision.
Territory requirements: Franchisors may be required to provide exclusive or non-exclusive territories to their franchisees. These territories may be geographic, demographic, or based on other factors.
Advertising requirements: Some franchise laws require franchisors to disclose advertising restrictions or requirements in their disclosure documents. For example, some franchise agreements may require franchisees to use specific advertising or marketing materials.
Training requirements: Franchisors are often required to provide initial and ongoing training to their franchisees. This may include training on the franchisor's system, products or services, and operating procedures.
Financial requirements: Franchise law may require franchisors to provide financial information to their franchisees. This may include disclosure of the franchisor's financial statements or an estimate of franchisee start-up costs.
Exit requirements: Franchise laws may specify the terms and conditions for franchisees to exit from the franchise agreement. These may include procedures for termination, buyouts, and the transfer of ownership.
"It was originally known as the Uniform Franchise Offering Circular (UFOC) (or uniform franchise disclosure document)."
"Revisions were made by the Federal Trade Commission in July 2007."
"Franchisors were given until July 1, 2008, to comply with the changes."
"The FDD implies that only the federal government or the state governments have the right to sue and negotiate consent decrees and rescissions with those franchisors who violate the provisions of the FTC Franchise Rule."
"Various state franchise laws that provide for the use of an FDD, in lieu of their own disclosure requirements, may create private rights of action, where a franchisor has violated its disclosure obligations in its FDD."
"The Franchise Rule specifies FDD disclosure compliance obligations as to who must be the one to prepare the disclosures, who must furnish them to prospective franchisees, how franchisees receive the disclosures, and how long franchisees must have to review the disclosures and any revisions to the standard franchise agreement."
"The FDD underlies the franchise agreement (the formal sales contract) between the parties at the time the contract is formally signed."
"The terms of which generally range from five to twenty years."
"A prospective franchisee must receive the franchisor's FDD franchise disclosure document at least 14 days before they are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor."
"The prospective franchisee has the right to ask for (and get) a copy of the sample franchise disclosure document once the franchisor has received the prospective franchisee's application and agreed to consider it."
"The franchisor may provide a copy of its franchise disclosure documents on paper, via email, through a web page, or on a disc."
"According to the Federal Trade Commission, there are 15 states that require franchisors to give an FDD to franchisees before any franchise agreement is signed."
"Thirteen of those states require that they are filed by a state agency for public record."
"Franchise buyers considering financing their business should pay close attention to FDD Items 2, 7, 15 & 20."
"Lenders who participate in offering government-backed loans (SBA loans) to borrowers carefully examine FDD (Items 2, 7, 15, 19 & 20) when considering a loan application."
"The FDD must also be approved by the SBA to be eligible for SBA financing."
"A list is made available for use by Lenders/CDCs in evaluating the eligibility of a small business that operates under an agreement."
"The Federal Trade Commission Rule of 1979 which governs the disclosure of essential information in the sale of franchises to the public underlies the state FDD's..."
"...prohibits any private right of action for the violation of the mandated disclosure provisions of the FDDs."