If you are a franchisor looking to sell or receive any fees from a prospective franchisee, then you may be required to establish a franchise disclosure document, otherwise known as an FDD. Continue reading to learn what you should expect from a franchise disclosure document and how one of the experienced franchise law attorneys at FortmanSpann, LLC can guide you through this process.
What is a franchise disclosure document?
Put simply, a franchise disclosure document is a legal document and prospectus which includes content that is regulated by federal and state franchise laws. More specifically, the Federal Trade Commission (FTC) requires this document to be established so that the benefits and risks of buying into the franchised business can be made transparent, and thus so that prospective franchisees to make an informed decision.
What is a franchise registration state?
Importantly, if you are offering or selling your franchise within a franchise registration state, then you may also have to file and register your franchise disclosure document with a local state regulator. That is, these states have issued supplemental franchise laws in addition to the federal franchise laws that you must follow. The franchise registration states are as follows:
- California (CA).
- Hawaii (HI).
- Illinois (IL).
- Indiana (IN).
- Maryland (MD).
- Michigan (MI).
- Minnesota (MN).
- New York (NY).
- North Dakota (ND).
- Rhode Island (RI).
- Virginia (VA).
- Washington (WA).
- Wisconsin (WI).
What should I expect to be covered in a franchise disclosure document?
The content that is involved in a franchise disclosure document is extensive. More specifically, there are 23 disclosure items that you must fill out, and they are as follows:
- FDD Item 1: The Franchisor and any Parents, Predecessors, and Affiliates.
- FDD Item 2: Business Experience.
- FDD Item 3: Litigation.
- FDD Item 4: Bankruptcy.
- FDD Item 5: Initial Fees.
- FDD Item 6: Other Fees.
- FDD Item 7: Estimated Initial Investment.
- FDD Item 8: Restrictions and Sources of Products and Services.
- FDD Item 9: Franchisee’s Obligations.
- FDD Item 10: Financing.
- FDD Item 11: Assistance, Advertising, Computer Systems, and Training.
- FDD Item 12: Territory.
- FDD Item 13: Trademarks.
- FDD Item 14: Patents, Copyrights, and Proprietary Information.
- FDD Item 15: Obligation to Participate in the Actual Operation of the Franchise Business.
- FDD Item 16: Restrictions on What the Franchisee May Sell.
- FDD Item 17: Renewal, Termination, Transfer, and Dispute Resolution.
- FDD Item 18: Public Figures.
- FDD Item 19: Financial Performance Representations.
- FDD Item 20: Outlets and Franchisee Information.
- FDD Item 21: Financial Statements.
- FDD Item 22: Contracts.
- FDD Item 23: Receipts.
You must disclose this document at least 14 days before you sell your franchise or you receive any fees from your franchise. So if you require assistance with filling out, filing, and registering this document, then you must retain the services of one of the skilled franchise law attorneys from our firm today.