The first thing you need to know about franchise disclosure documents is the Rule of Law that governs the creation of franchises in the United States of America. The law, outlined in 16 C.F.R. Part 436 as the Franchise Rule, has some guidance issued by the Federal Trade Commission in the form of a Franchise Rule Compliance Guide.
After understanding the Rule of Law that governs franchises, creating the Franchise Disclosure Document, or the FDD as it is commonly referred to as, encompasses making sure that the following 23 Items. These items govern the franchisee and franchisor relationship. The 23 items necessary to be included in the Franchise Disclosure Document, or the FDD, are:
- Item 1: The Franchisor, Its Parents, Predecessors and Affiliates
- Item 2: Business Experience
- Item 3: Litigation
- Item 4: Bankruptcy
- Item 5: Franchise Fees
- Item 6: Other Fees
- Item 7: Estimated Initial Investment
- Item 8: Restrictions on Sources of Products and Services
- Item 9: Franchisee’s Obligations
- Item 10: Financing
- Item 11: Franchisor’s Assistance, Advertising, Computer Systems and Training
- Item 12: Territory
- Item 13: Trademarks
- Item 14: Patents, Copyrights and Proprietary Information
- Item 15: Obligation to Participate in the Actual Operation of the Franchise
- Item 16: Restrictions on What the Franchisee May Sell
- Item 17: Renewal, Termination, Transfer and Dispute Resolution
- Item 18: Arrangements with Public Figures
- Item 19: Financial Performance Representations
- Item 20: Outlets and Franchisee Information
- Item 21: Financial Statements
- Item 22: Contracts
- Item 23: Receipt
- Exhibits
While only 23 Items are required in the franchise disclosure document, usually an appendix is attached with pertinent information related to the document, the business and the franchise.
Franchising your business is a sustainable way to scale your venture. But be diligent, many laws are triggered when franchising a business. For example, the franchise must be registered in every State that the franchise will be offered in. In addition, selling a franchise, legally, is like selling a security. This means that investor protection is of the utmost importance. The Franchise Disclosure Document is the first step in this them of investor protection and each section should be carefully crafted to assure that your business does not tie itself to any legal liability in regards to franchising its business.
If you need assistance in developing and writing your Franchise Disclosure Document, Cervitude IR can help. Our team of intellectual property consultants and business consultants have helped businesses across the USA expand their footprint by establishing strong Franchise Disclosure Documents carefully crafted to maximize ROI for your business. Ready to write your FDD? Contact our franchise development consultants today to schedule a free consultation in regards to franchising your business.
