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FRANCHISE DISCLOSURE DOCUMENTS
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This All Important Document Gives Your Prospects Vital Information
Writing, updating, and distributing the franchise disclosure document, or FDD, is a key part of growing your business with new franchise locations. This important legal document is chock full of information that your franchise partners need to know before they invest in your brand. The experts at Accurate Franchising, Inc. can help you compile the data into your FDD so that it covers every required point and shows your prospects why yours is a great brand.
Want to know more about it? Here are some FAQs about the FDD.
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Q: Does My Business Have to Have a Franchise Disclosure Document?
In the United States, the FDD is required by the Federal Trade Commission, or FTC, which is the government agency that regulates franchises. The FTC requires that franchisors be upfront with their prospects and not give misleading information just to try to sell franchises, and the franchise disclosure document is one way they do that. Creating the FDD is one of the first things you will do when you start franchising your business.
Q: When Do I Give Franchisee Prospects the FDD for Review?
A: Before they sign the franchise agreement.
Your prospects need to be able to review all the information in the disclosure document before they sign the franchise agreement. In fact, one of the items included in the FDD (listed below) is an acknowledgement of receipt.
Q: What Does the FDD Include:
A: There are 23 items that need to be in your document.
Item 1: The franchisor (your company) and any parent companies or affiliates
Item 2: Business experience, biographies, and backgrounds of the franchise’s owners and officers.
Item 3: All current and previous litigation that the franchisor and its leaders are involved in.
Item 4: If the company or any of its management have been through bankruptcy, the details are in item 4.
Item 5: List of the initial feels and any factors that determine the amount of these fees.
Item 6: Any other recurring fees
Item 7: The total estimated initial investment, including all the investor’s expenditures to get the franchise established.
Item 8: Any restrictions on sources of the products and services.
Item 9: The franchisee’s obligations and where in the franchise agreement those obligations can be found.
Item 10: Information, terms, and conditions regarding any financing agreements that you will provide your owners.
Item 11: All the assistance, advertising, and training provided by the franchisor to the franchisee.
Item 12: Territory information, including exclusivity of territories and whether territories can be modified.
Item 13: All trademarks owned by the franchisor.
Item 14: Patents, copyrights, and proprietary information and how the franchisee can use them.
Item 15: Franchisee’s obligation to participate in the franchise’s operations.
Item 16: Any restrictions on what the franchisee may sell.
Item 17: The timeline and rules on renewal, terminations, and transfers. Also specifies how any disputes between franchisor and franchisee will be handled.
Item 18: If your company works with any public figures, this item discloses how much they are paid.
Item 19 (optional): Financial performance of franchise units.
Item 20: List of operating franchise locations and their contact information.
Item 21: Financial statements from the last three years.
Item 22: All contracts and agreements that the franchisee will sign.
Item 23: Acknowledgement of receipt, must be signed by the franchisor.
Q: How Often Do I Need to Update my Franchise Disclosure Document?
The FTC requirement is that franchisors update their FDDs within the first four months (120 days) of their fiscal year. Additionally, some individual states have their own deadlines, so it is essential that you know when you need to have your update complete in your territory.
Q: Do I need an FDD if I am Franchising Internationally?
A: You need to follow the laws of the country/countries in which you are franchising.
Your responsibility as an international franchisor is to learn the laws of the country or countries in which you are expanding, and then follow those laws. Every country regulates franchises differently, so depending on your targeted country’s rules you may have to create a different document with slightly different points. The good news is AFI is the expert in international franchising, and we can help you navigate all the regulations you will face.
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