Ultimate Guide to Franchise Disclosure Documents (FDD)

Structure of an FDD

by Daniel Rung and Matthew Rung

View Table of Contents

• Introduction
• Purpose and Legal Requirements of FDDs
• Structure of an FDD
• Detailed Breakdown of Key FDD Sections
• How to Analyze an FDD
• Common Misconceptions about FDDs
• Tips for Prospective Franchisees
• Legal Aspects and Your Rights
• Recent Changes and Trends in FDDs
• Conclusion
• Resources for Further Information

The Franchise Disclosure Document (FDD) is a comprehensive and standardized document designed to provide potential franchisees with crucial information about a franchise opportunity. At its core, the FDD follows a structured format mandated by the Federal Trade Commission (FTC), consisting of 23 distinct items. This standardization ensures that prospective franchisees can easily compare different franchise opportunities and make informed decisions. Each section of the FDD serves a specific purpose, offering insights into various aspects of the franchise system, from the franchisor’s background to financial obligations and operational details. Understanding this structure is essential for anyone considering a franchise investment, as it provides a roadmap for navigating the complex landscape of franchise opportunities.

List of 23 standard items required by the FTC

The Franchise Disclosure Document (FDD) follows a standardized structure mandated by the Federal Trade Commission (FTC). This uniform format ensures that potential franchisees can easily compare different franchise opportunities and access crucial information. The FDD consists of 23 distinct items, each addressing specific aspects of the franchise offering.

Here’s a comprehensive list of the 23 standard items required by the FTC:

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

Each of these items serves a specific purpose in providing potential franchisees with a comprehensive understanding of the franchise opportunity. They cover everything from the franchisor’s background and financial health to the franchisee’s obligations and potential earnings.

Click to view Key Takeaways & Tips

Key Takeaways

• The FDD is a standardized document with 23 required items.
• Each item addresses a specific aspect of the franchise opportunity.
• The uniform structure allows for easy comparison between different franchises.
• The FDD covers a wide range of topics, from financial details to operational requirements.

Tips

• Familiarize yourself with all 23 items before reviewing an FDD.
• Pay special attention to items that directly impact your financial investment and potential returns.
• Don’t skip any sections, as crucial information can be found throughout the document.
• Use the standardized format to create a checklist for comparing multiple franchise opportunities.
• If any item is unclear or seems incomplete, don’t hesitate to ask the franchisor for clarification.

• Facebook
• Twitter
• LinkedIn
• Mail
• Print