What Is a Franchise Disclosure Document?
A franchise disclosure document (FDD) is a legal document supplied to prospective purchasers of franchises. The Federal Trade Commission (FTC) regulates these required documents by requiring franchisors give one to potential franchisees.
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Requirements
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The franchisor is required by the FTC to give the franchisee this disclosure at least 10 days before the franchisee signs a franchise agreement. The FDD must contain 23 categories as well.
Purpose
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A FDD is designed to assist franchisees in analyzing a franchisor's merits. It offers important information regarding the financial history of other franchisees conducting business under this particular franchisor. It also gives cost information and obligations of both parties. This document protects potential franchisees from getting into a business that may be struggling or in financial trouble, among other safeguards.
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Details
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All industries use the same FDD format containing many categories including information about the franchisor, the litigation history, any franchisees who filed bankruptcy, and all fees and costs involved in obtaining the franchise. It also contains information regarding restrictions, territory issues, trademarks, and termination, transfer and dispute resolution issues.
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