Franchising: Franchise Disclosure Document

There are many different reasons why an individual may choose to become a franchisee. However, to become a franchisee, a process needs to be followed, including satisfying the requirements of the franchise disclosure document (FDD). This article and a subsequent one will discuss the FDD and the sections that are contained within it. According to franchise buy.com [Washington DC Franchise Opportunities & Franchises For Sale | FranchiseBuy.com], to date, there are 407 franchise opportunities in Washington DC. Two key documents are associated with franchising, the franchise agreement and the franchise disclosure document. For more information on the franchise agreement, speak to a franchise agreement attorney today. 
The FDD is a legal document that requires a franchisor to disclose information to a prospective franchisee before the sale of the franchise. There are a total of 23 disclosure sections found in the FDD that require the franchisor to disclose information about the:

· Franchisor him/herself 

· Franchise opportunity on sale

· Fees

· The legal relationship between the franchisor and franchisee

· Other information with regards to the franchise offering

In accordance with federal and state franchise law, the FDD must include 23 sections referred to as an item; these are:

1. The franchisor and any parents, predecessors, and affiliates – this section discloses how long the franchisor has been in existence and operational. Further, it must include information about affiliated companies as well as franchisor parent companies

2. Business experience – this is satisfied by disclosing the franchisor’s executive team

3. Litigation discloses information about various types of litigious actions, whether criminal or civil, past or present. Further, such actions are not limited just to the franchise but its affiliates, predecessors, and all individual executive team members.

4. Bankruptcy – this provides information regarding previously filing for bankruptcy either by the franchise, its predecessors, affiliates, and any executive team members.

5. Initial fees – this is the disclosure of all upfront fees to be paid by the franchisee to the franchisor before opening the franchise business.

6. Other fees – this refers to the disclosure of hidden or recurring fees that the franchisee must pay to the franchisor—for example, the payment of recurring royalties.

7. Estimated initial investment – this is the disclosure of a low-to-high estimated range of cost needed for the franchisee to establish the franchise, including estimated working capital.

8. Restriction on sources of products and services – disclosure of restrictions regarding the sourcing of products and/or services.

9. Franchisee’s obligations – a table format of obligations to be met by the franchisee.

10. Financing – disclosure of conditions of any financial arrangements available.

11. Franchisor’s assistance, advertising, computer systems, and training – discloses the assistance to be expected by the franchisee prior to opening the franchise and ongoing support.

12. Territory – disclosure of any location or territory restrictions or if there will be territory modification.

13. Trademarks – disclosure of franchise system trademarks

14. Patents, copyrights, and proprietary information – disclosure of patents, copyrights, and proprietary information not covered under section/item 13.  

15. Obligation to participate in the actual operation of the franchise business – disclosure of franchisee participation in the franchisee business operations.