As a franchisor, you must be very meticulous when drafting and establishing your franchise disclosure document. One section that is exceptionally important for protecting you in your franchise sale is Item 9, otherwise known as, “Franchisee’s Obligations.” Continue reading to learn what is exactly included in Item 9 of the FDD and how one of the experienced franchise law attorneys at FortmanSpann, LLC can help you comb over its contents.
What is included in Item 9 of the franchise disclosure document?
According to the Federal Trade Commission’s Franchise Rule, Item 9 of the FDD is supposed to disclose a franchisee’s obligations before the sale of your franchise. This may be comprised of 24 specific franchisee obligations common to franchises. Examples are as follows:
- A franchisee’s obligations for pre-opening purchases and leases.
- A franchisee’s obligations for initial and ongoing training fees.
- A franchisee’s obligations for territorial development and sales quotas.
- A franchisee’s obligations for trademarks and advertising.
- A franchisee’s obligations for compliance standards.
Overall, this information is to let prospective franchisees understand what they are getting themselves into before purchasing a franchised business. Understandably so, owning a franchise is not the best fit for everyone’s lifestyle and goals. This is because owning a franchised business involves a lot of hard work, commitment, and willingness to operate in a specific manner. So, after reading Item 9, prospective franchisees should be able to easily determine whether they are willing to invest in this business opportunity.
What else should I mind in this section?
Like other sections of the FDD, the information disclosed in Item 9 must be presented in a specific way. That is, it must be placed in a tabular formation. Within this table must be the 24 specific franchisee obligations common to franchises, along with any other principal obligations that you may require of your franchisee while they operate the franchised business. The 24 specific obligations should be under the “Obligation” row, while the other principal obligations should be under the “Other” row.
In addition, for each obligation listed in the table, you must provide a cross-reference to the section of the FDD or any other document where that same obligation is listed. These cross-references should be listed under the “Section in agreement” row or the “Disclosure document item” row.
And if need be, you may include footnotes at the end of the table. Use your discretion when determining whether certain obligations require further information or explanation so that the prospective franchisee is left with little to no questions regarding what is expected of them.
You must remember that you hold certain rights when it comes to a franchisee’s obligations. So please do yourself a favor and retain the services of one of the skilled franchise law attorneys from FortmanSpann, LLC today.