The Franchise Disclosure Document (FDD) contains 23 items that are required by the Federal Trade Commission for every franchisor.
The International Franchise Association provides a helpful overview of the 23 items on its website at: http://franchise.org/aboutfranchising.aspx. The 23 items are also described here.
Item 1: The franchisor and any parents, predecessors, and affiliates. This section provides a description of the company and its history.
Item 2: Business experience. This section provides biographical and professional information about the franchisor and its officers, directors, and executives.
Item 3: Litigation. This section provides relevant current and past criminal and civil litigation for the franchisor and its management.
Item 4: Bankruptcy. This section provides information about the franchisor and any management who have gone through a bankruptcy.
Item 5: Initial fees. This section provides information about the initial fees and the range and factors that determine the amount of the fees.
Item 6: Other fees. This section provides a description of all other recurring fees or payments that must be made.
Item 7: Estimated initial investment. This section is presented in table format and includes all the expenditures required by the franchisee to establish the franchise.
Item 8: Restriction on sources of products and services. This section includes the restrictions that the franchisor has established regarding the sources of products or services.
Item 9: Franchisee’s obligations. This section provides a reference table that indicates where in the franchise agreement franchisees can find the obligations they have agreed to.
Item 10: Financing. This section describes the terms and conditions of any financing arrangements offered by the franchisor.
Item 11: Franchisor’s assistance, advertising, computer systems, and training. This section describes the services that the franchisor will provide to the franchisee.
Item 12: Territory. This section provides the description of any protected territory and whether territories will be modified.
Item 13: Trademarks. This section provides information about the franchisor’s trademarks and service and trade names.
THE FRANCHISE DISCLOSURE DOCUMENT
Item 14: Patents, copyrights, and proprietary information. This section gives information about how the patents and copyrights can be used by the franchisee.
Item 15: Obligation to participate in the actual operation of the franchise business. This section describes the obligation of, and the extent of, the franchisee to participate in the actual operation of the business.
Item 16: Restrictions on what the franchisee may sell. This section deals with any restrictions on the goods and services that the franchisee may offer its customers.
Item 17: Renewal, termination, transfer, and dispute resolution. This section tells you when and whether your franchise can be renewed or terminated and what your rights and restrictions are when you have disagreements with your franchisor.
Item 18: Public figures. If the franchisor uses public figures (celebrities or public persons), the amount the person is paid is revealed in this section.
Item 19: Financial performance representations. This section provides the information disclosed on unit financial performance. All franchisors are allowed to include this information but doing so is not required.
Item 20: Outlets and franchisee information. This section provides locations and contact information of existing franchisees, as well as details on transfers and unit closures.
Item 21: Financial statements. Audited financial statements for the past three years are included in this section, as well as details on transfers and unit closures.
Item 22: Contracts. This section provides all of the agreements that the franchisee will be required to sign.
Item 23: Receipts. This section includes the receipt that prospective franchisees are required to sign acknowledging that they received the FDD.
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