What is a FDD?

The Franchise Disclosure Document, or FDD, formally known as The Uniform Franchise Offering Circular, or UFOC is a document containing detailed information about a franchise. Its contents are regulated by the Federal Trade Commission and are designed to assist the prospective franchisee in analyzing the merits of a potential franchise. By law, a franchisor must provide the franchisee with a FDD before a contract can be signed or any payment is made. A FDD is made up of three parts: 23 items describing various aspects of the franchise offering, 2) up to three years of the franchisor's audited financial statements, and 3) the franchise agreement that the franchisee must sign if he/she intends to buy the franchise. them.

Keep in mind that neither the FTC nor any of the states has reviewed the offering circular to determine whether the information submitted is true or not. They merely require that the franchisor make representations based upon a prescribed format. If the information provided is false, franchisors are subject to civil penalties. However, it is far less costly to avoid making a mistake in the first place with solid research of your own. Every FDD document contains the following 23 items:

Item 1 - The Franchisor, Its Predecessors And Affiliates
Item 2 - Business Experience
Item 3 - Litigation
Item 4 - Bankruptcy
Item 5 - Initial Franchise Fee
Item 6 - Other Fees
Item 7 - Initial Investment
Item 8 - Restrictions On Sources Of Products And Services
Item 9 - Franchisee's Obligations
Item 10 - Financing
Item 11 - Franchisor's Obligations
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 Business
Item 16 - Restrictions On What The Franchisee May Sell
Item 17 - Renewal, Termination, Transfer And Dispute Resolution
Item 18 - Public Figures
Item 19 - Earnings Claims
Item 20 - List Of Outlets
Item 21 - Financial Statements
Item 22 - Contracts
Item 23 - Receipt