When you first begin franchising your business, you must have created and distributed a franchise disclosure document (FDD) to all interested franchisees. Essentially, this is a legal document, required by the Federal Trade Commission (FTC), which discloses certain information necessary for prospective franchisees to make a well-informed decision before buying into a franchise. However, when creating and distributing your FDD, this is not a one-time deal. That is, you may have to circle back and make updates when needed. Continue reading to learn when the right time is to update your FDD and how one of the experienced franchise law attorneys at FortmanSpann, LLC can offer sound legal advisement.
Under what circumstances should I update my FDD?
Put simply, the FTC may require that you update your FDD when there is a material change to you or your franchise system. More specifically, the FTC defines a material change as any change that is likely to have a significant impact on a franchisee’s or a prospective franchisee’s financial impact or decision-making process. Examples of such material changes include, but are not limited to, the following:
- There has been an addition or removal of an individual from your upper-level personnel within the franchise system.
- There have been developments in lawsuits filed by or against upper-level personnel or the franchise system.
- There have been significant changes in laws affecting the costs or ability to generate certain revenue streams within the franchise system.
- There have been significant changes to the financial performance of the franchise system, or even the recent filing of a bankruptcy petition.
- There have been significant changes to the fees imposed on franchisees within the franchise system, or even the changing of an initial investment estimate.
When should I call for legal assistance?
It is worth mentioning that every state may have a different idea as to what is considered a material change; and therefore a different idea as to when FDD updates are necessary. What’s more every state may enforce a different period in which updates need to be made. This is why a seasoned franchise law attorney may be able to advise on the next best move based on the state in which your franchise system resides.
In addition, the FTC may require you to update your FDD even without the existence of material change to your franchise system. This is because you must update your FDD disclosures in an annual audit and/or registration renewal. With that being said, it is in your best interest to call for legal assistance for fiscal year 2024 as soon as you possibly can.
In the end, the first step you should take to update your FDD is to retain the services of one of the skilled franchise law attorneys. So call us at FortmanSpann, LLC today.