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What Is A Franchise Disclosure Document FDD

The Franchise Disclosure Document (FDD) provides prospective franchisees with essential information about the franchisor and franchise system. It discloses details on the franchisor's business experience, legal history, fees, estimated costs, obligations of both parties, terms of the agreement, and more. The FDD helps franchisees make an informed decision when considering entering into a franchise contract.

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373 views3 pages

What Is A Franchise Disclosure Document FDD

The Franchise Disclosure Document (FDD) provides prospective franchisees with essential information about the franchisor and franchise system. It discloses details on the franchisor's business experience, legal history, fees, estimated costs, obligations of both parties, terms of the agreement, and more. The FDD helps franchisees make an informed decision when considering entering into a franchise contract.

Uploaded by

Emiru Kun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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One of the legal requirements before a franchisee may engage into a franchise

agreement with a prospective franchisee is a Franchise Disclosure Document (FDD).


The FDD is an essential document that must indicate pertinent information regarding
the franchisor and its business such as its legal history, company structure, financial
status and agreements, existing franchisees, and many others.

What is in it for the Franchisee?

FDD helps a prospective franchisee make an informed decision when entering a


franchise contract. It basically provides an overview of the status and experience of the
franchisor, the respective obligations and rights of the parties under the franchise, as
well as the recourse of the parties in case of disputes. More particularly:

Franchisor’s identity and all related interests – The franchisor must disclose not only
its corporate information, but also the corporate information of its parent, affiliates, and
subsidiaries if there are any.

Franchisor’s business experience – The franchisor must disclose information about its
corporate officers and management staff.

Legal Cases – The franchisor must disclose some of the litigation that it has been
involved with. It must likewise disclose those of its subsidiaries, affiliates, predecessors,
and of its corporate officers and management staff in their individual capacity.

Bankruptcy – The franchisor must disclose whether or not the franchisor, its related
interests, and/or its corporate officers and management staff has previously filed for
bankruptcy.

Upfront payment – The franchisor must disclose all initial fees that a franchisee must
pay to the franchisor before the franchisee can finally open for business. These may
include opening-inventory and equipment costs.

Other Fees – In addition to the upfront costs, the franchisor must also disclose all fees
that a franchisee must pay during the life of the franchise agreement. These may
include royalties, marketing, technology, training, and other similar costs.

Estimated Initial Investment – The franchisor must include an estimate of the cost for a
franchisee to establish its franchised business. It must include everything from the
construction and equipment costs to reserve capital for the first few months of
operation.

Restrictions – The franchisor must disclose the products and services that the
franchisee must exclusively purchase from the franchisor or its designated suppliers.
Additionally, the franchisor must disclose its profits from selling exclusive supplies and
products to franchisees. The franchisor must also disclose what products or services the
franchisees may not offer to the market.
Franchisee’s Obligations – The franchisor must disclose all of the franchisee’s
obligations under the agreement from the very beginning up to the termination of the
contract.

Financing – The franchisor must disclose whether it offers financing as to any


applicable in connection with the franchised business.

Support – The franchisor must disclose the type of assistance, training, as well as the
advertising requirements from the franchisee. The franchisor must likewise disclose the
required computer and software systems that the franchisee must procure.

Territory – The franchisor must disclose whether or not the franchisee will be
guaranteed an exclusive territory. If so, the franchisor must also disclose how the
territory will be determined.

Intellectual Property – The franchisor must disclose the trademarks, patents,


copyrights, and other intellectual properties connected with the franchise. The
disclosure must include their registration status and any pending dispute surrounding
them.

Franchisee Participation – The franchisor must disclose the obligations of the


franchisees, including the number of hours required from the franchisee, in running the
operations of the business franchise.

Franchise Term, Termination, Assignment, and Dispute Resolution – The franchisor


must summarize the conditions related to the renewal and termination of the
agreement. It must also disclose whether the franchisee may assign its rights to the
franchise. The franchisor must also disclose how disputes must be resolved between the
parties.

Endorsers – The franchisor must disclose personalities that have been hired to promote
the franchise system if any.

Financial Performance Representations – The franchisor must disclose whether or not


it will provide Financial Performance Representations. If it does, it must provide the
franchisee specific level or range of actual or potential sales, income, gross or net profits,
or "break-even" figures.

Outlets and Franchisee Information – The franchisor must disclose a summary of its
franchised and corporate outlets over the past couple of years and a projection of any
future opening.
Financial Statements – The franchisor must disclose and include copies of its financial
statements.

Contracts – The franchisor must attach to the FDD a sample of the franchisor’s standard
franchise agreement and all related agreements thereto.

Receipt Page – The FDD must have a receipt page where a franchisee must sign to
confirm and prove the FDD has been accordingly provided.

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