Franchising isn’t an overnight task, it takes a lot of documents and legal procedures to complete the process successfully. One such document is FDD. This stands for Franchise Disclosure Document. It is basically a legal document required by Federal Trade Commission that consists of all the information required before making an investment in a franchise. FDD basically outlines the responsibilities of the franchisee and franchisor. It further lists all costs associated with starting the business. And also explains any previous litigation history. This document is basically 23 items or sections long and each of its components needs to be reviewed carefully. Let us understand FDD in more detail with this segment!
As discussed earlier, the franchise disclosure document basically outlines the information about the roles of both parties involved and is further designed to enable the potential franchisee to make an honest and informed decision about the investment. The document further discloses how the investment would work in practice for the potential franchisee. It is treated as a license that a party acquires to allow them to have access to a business’s proprietary knowledge, processes, and trademarks.
With an FDD, the franchisee gets the ability to sell a product or provide a service under the business’s name. According to the Federal Trade Commission, franchisors have an obligation to provide the FDD at least 14 days before any initial exchange of money. The franchisee has a right to a copy of FDD after the franchisor has received and agreed to it.
Major Sections Included in Franchise Disclosure Document
There are certain components or sections that cannot be missed out in a Franchise Disclosure Document. Note that, each document contains the sections in the order listed in this segment.
- The Franchisor and Any Parents, Predecessors, and Affiliates
- Business Experience
- Initial Fees
- Other Fees
- Estimated Initial Investment
- Restrictions On Sources of Products and Services
- Franchisee’s Obligations
- Franchisor’s Assistance, Advertising, Computer Systems, And Training
- Patents, Copyrights, and Proprietary Information
- Obligation to Participate in the Actual Operation of the Franchise Business
- Restrictions on What the Franchisee Sells
- Renewal, Termination, Transfer, and Dispute Resolution
- Public Figures
- Financial Performance Representations
- Outlets and Franchisee Information
- Financial Statements
These 23 elements together make an FDD. Note that, an FDD must be updated at least annually, within 120 days of the franchisor’s fiscal year-end. Moreover, the franchisors should submit their renewal well in advance of the 120 days mark, as state examiners need to time review the registration application. Signing this document doesn’t mean that the franchisee is under any obligations to the franchisor. The obligations don’t begin until the franchise agreement is signed.
Other than the information shared in this segment related to the FDD, there are a lot of facts that both parties should be aware of and only a professional with the right expertise would be able to address all the queries related to FDD. So, if you have any queries, then the ERC team can help you with them. We are a team of seasoned experts and professionals having years of experience and expertise in the industry. We understand what it takes for a restaurant business to be a successful venture. For more details, feel free to visit our website i.e., https://erestaurantconsulting.ca/, or connect with us via our number i.e., 1-647-209-4153, and discuss your queries with the experts directly.