The Franchise Disclosure Document (FDD) includes content that is regulated by federal and state franchise laws. Specifically, this content entails 23 disclosure items. For one, Item 2 requires franchisors to disclose information about their management team. Read on to discover what the contents of Item 2 of the FDD are and how one of the seasoned franchise law attorneys at FortmanSpann, LLC, can assist you in filling this section out correctly.
By definition, what is the FDD?
First of all, the FDD is a legal document and a prospectus that the Federal Trade Commission (FTC) requires franchisors to disclose to prospective franchisees. Its contents are intended to allow prospective franchisees to make an educated decision after considering the benefits and risks of buying into a franchised business. Importantly, franchisors must disclose this document at least 14 days before selling their franchise or receiving any fees from a franchisee.
What content is included in Item 2 of the FDD?
To specify, Item 2 of the FDD requires franchisors to disclose the business experience of certain individuals involved in the franchise entity. This may be regardless of which entity formally employs these individuals, whether it be the franchisor themself, an affiliate, or a parent company. Additionally, this is regardless of whether these individuals have a formal title. Examples of such individuals may include the following:
- Individuals who are managing the franchise:
- General partners.
- Principal officers.
- Individuals who are managing the sales or operations of the franchise:
- Sales team members.
- Support team members.
With that being said, the following is the specific information that must be disclosed about each individual:
- Each individual’s full name.
- Each individual’s title within the franchise entity.
- Each individual’s employment history:
- Start and end date of each employment opportunity.
- Business name, location, and address of each employment opportunity.
What content is not included in Item 2 of the FDD?
Notably, franchisors are not required to disclose information regarding any brokers involved in the sales of its franchise.
Also, not all managers need to be disclosed. Instead, according to the FTC’s Franchise Rule Compliance Guide, individuals only need to be disclosed, “…if their involvement in either the sales or operations is such that a prospective franchisee would rely on their expertise, formulation of policy, or control of the system in making an investment decision.”
Overall, because this is a federally-regulated legal document and prospectus, the entirety of your FDD must be properly executed. So, you should not proceed any further without the services of one of the competent franchise law attorneys. Give us a call as soon as you get the free chance.