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Franchise Disclosure Document (FDD)

Commonly called an FDD, a Franchise Disclosure Document is required by the federal Franchise Rule (16 CFR Parts 436 and 437) to contain the following twenty-three (23) items, in the following order:

  1. The Franchisor and any Parents, Predecessors, and Affiliates
  2. Business Experience
  3. Litigation
  4. Bankruptcy
  5. Initial Fees
  6.  Other Fees
  7. Estimated Initial Investment
  8. Restrictions on Sources of Products and Services
  9. Franchisee's Obligations
  10. Financing
  11. Franchisor's Assistance, Advertising, Computer Systems, and Training
  12. Territory
  13. Trademarks
  14. Patents, Copyrights, and Proprietary Information
  15. Obligation to Participate in the Actual Operation of the Franchise Business
  16. Restrictions on What the Franchisee May Sell
  17. Renewal, Termination, Transfer, and Dispute Resolution
  18. Public Figures
  19. Financial Performance Representations
  20. Outlets and Franchisee Information
  21. Financial Statements
  22. Contracts
  23. Receipts

Further, the Franchise Rule requires that each of the foregoiung twenty-three (23) items contain specific information. What follows is a discussion of some of the most notable required items.

5. Initial Fees

A franchisor is required to dislcose the intiial requird fees and any condition under which such fees are refundable.

6. Other Fees

A franchisor must disclose the other, non-initial or recurring fees that a franchise is obligated to pay.

7. Estimated Initial Investment

A range, i.e. minimum and maximum, regarding the capital outlay required to begin operations.

8. Restrictions on Sources of Products and Services

Can the Franchisee purchase goods and services to run the franhcise from any supplier? Or must the franchisee purchase goods or services only from the franchisor or its designees?

9. Franchisee's Obligations

An FDD must contrain an itemized table of all the Franchisee's obligations pursuant to the franchise agreement.

12. Territory

In which gepgraphic areas may the Frnachisee operate the franchise? Perhaps more impiortantly, in whuich geographic areas is the Franchisee prohibited from operating the franchise?

This brief overview of some important considerations associated with franchise disclosure documents is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.

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