With the Franchise Disclosure Document (FDD), a legal document and prospectus, the Federal Trade Commission has franchisors disclose certain information about their business to their prospective franchise buyers. Such information is intended to have the prospective franchise buyers make an educated decision after weighing the benefits and risks of buying into your franchised business. Notably, the information included in the FDD is regulated by federal and state franchise laws, and it is divided into 23 disclosure items. Specifically, the first item is titled “The Franchisor and any Parents, Predecessors, and Affiliates.” Continue reading to learn what is included in Item 1 of the FDD and how one of the experienced franchise law attorneys at FortmanSpann, LLC, can help you with drafting this.
What does Item 1 of the FDD include?
In Item 1 of the FDD, franchisors must disclose the following pieces of information:
- Franchisors must state who they are (i.e., name).
- Franchisors must state their principal business address (i.e., the physical address of the home office in the United States).
- Franchisors must state their agent for service of process.
- Franchisors must state the type of organization their franchised business follows (i.e., corporation, partnership, limited liability company, etc).
- Franchisors must state the franchised business opportunity that they are offering to prospective franchise buyers.
- Franchisors must state the corporate information of themselves and their affiliates.
- Franchisors must state the corporate structure and corporate history of their franchised business.
- Franchisors must state the market in which their franchised business operates.
- Franchisors must state whether or not their franchised business is seasonal.
- Franchisors must state any laws, rules, or regulations that apply to their franchised business.
What do the different disclosures in Item 1 mean?
With Item 1 of the FDD being titled “The Franchisor and any Parents, Predecessors, and Affiliates,” the information about franchisors, along with what they must disclose about their parents, predecessors, and affiliates include the following:
- Franchisor: any person who grants a franchise and participates in the relationship post-sale.
- Parents: franchisors must state any parent companies with which they are affiliated. Notably, a parent company is an entity that controls another entity directly or indirectly through one or more subsidiaries.
- Predecessors: franchisors must state any predecessor of their franchise for the 10-year period immediately before the end of the most recent fiscal year. Notably, a predecessor is a person from whom the franchisor directly or indirectly acquired the majority of their assets.
- Affiliates: franchisors must state any affiliate companies they have. Notably, an affiliate is an entity that is controlled by, controlling, or under the same control as another entity.
If you require more information on what to include in Item 1 of the FDD, reach out to a skilled franchise lawyer today.