Franchise Disclosure Document Template – Definition and Requirements

Franchise Disclosure Document (FDD) Sample – MacDonalds, Subway, Dunkin Donuts

What is the Franchise Disclosure Document? What information is found in the FDD? Franchising a business is a great way of stimulating growth and expansion. By buying into the business, the franchisor sets the terms and conditions of the business enterprise by way of the franchise disclosure document.

what is a franchise disclosure document (fdd) and why is it important? This document is made available to the prospective franchisee during pre-ownership discussions. The franchise disclosure document requirements are made available to the prospective franchisee 14 days before any signing of agreements or contracts.

This time is given to enable the prospective franchisee study the document while seeking legal help or interpretation to the details. If the terms set forth within the franchise disclosure document are deemed fair enough, then the prospective franchisee can approach the franchisor for acceptance and contract signing.

The Contents – Sample Template

The contents within the franchise disclosure document are normally written in a prescribed order or format. This is to written to enable the prospective franchisee easily make informed investment decisions as it contains the entire terms of agreements for owning the franchise. There are normally 23 sections within the franchise disclosure document. These include the following;

  1. The Franchisor and Any Parents, Predecessors and Affiliates

Just like an introduction, this section contains a comprehensive description of the company, the competition as well as licensing issues as well as permits that may be needed by the franchisee, in addition to how the company came into existence which is its history.

  1. Identity and Business Experience of Key Persons

Under this section, it captures the experience as well as relevant professional qualifications of the executives or officers of the franchisors.

  1. Litigation

This is historical in nature as it provides any information of prior litigation cases against any of its officers as well as possible felony charges that may have resulted in the past. This information enables the prospective franchisee make his/her own judgement about the franchisor.

  1. Bankruptcy

This provides the prospective franchisee information to enable him/her make a fair assessment of the franchisor’s financial stability by disclosing any recent bankruptcy issues if any.

  1. Initial Fees

The cost implications of owning this franchise are disclosed under this section. Other related costs such as the advert fees as well as royalties are made available here. All non-refundable fees are also clearly stated here.

  1. Other Fees

Here, all other fees either recurring or otherwise which may be incurred by the prospective franchisee in the course of ownership of the franchise are provided.

  1. Estimated Initial Investment

This is an estimate of expenditure to be incurred by the franchisee in order to own a part of this franchise.

  1. Restrictions on Sources of Products and Services

In order to guard its interests, a franchisor may decide to restrict its franchisees from getting their products supplied from certain sources. All the details regarding this is provided under this section.

  1. Obligations of the Franchisee

The franchisee is expected to abide by certain obligations which are provided by the franchisor. This section captures the entire franchisee obligation.

  1. The Financing Arrangements

This section discloses if there are any financing arrangements made available by the franchisor, and if there are, describes the terms and conditions to qualify for this financing.

  1. The Obligations of the Franchisor (Franchisor’s Assistance, Advertising, Computer Systems and Training)

Here, it captures the obligations on the part of the franchisor. It lists all the services the franchisor is to provide to the franchisee.

  1. Territory

Territory rights are disclosed under this section. Exclusive territory matters are revealed as well as possible future changes that may result.

  1. Trademarks

The franchisor’s trademarks as well as its trade names are disclosed as well as the conditions attached to the use of its trademarks.

  1. Patents, Copyrights and Proprietary Information

Copyrights and patent usage are discussed, with information on how they should be used adequately provided.

  1. Obligation to Participate in the Actual Operation of the Franchise Business

The obligation the franchisee is expected to abide by in actual operation of the franchise business is provided under this section. These obligations are a requirement set forth by the franchisor.

  1. Restrictions on What the Franchisee May Sell

There are restrictions to what the franchisee may or may not sell to its clients or customers. This section highlights these restrictions.

  1. Renewal, Termination, Transfer, and Dispute Resolution

The tenure of the franchise agreement is stated here. Also, information is given on what constitutes the right of the franchisee in the event that there is a disagreement or dispute between the franchisee and franchisor.

  1. Public Figures

In the event where the franchisor uses notable personalities, the percentage or amount such a person is paid is disclosed.

  1. Financial Performance Representations

Although not a requirement, the franchisor under this section is expected to support their claims on earnings if they so wish to provide such information.

  1. Outlets and Franchisee Information

Under this section in the franchise disclosure document, information is provided on the locations as well as outlets owned by the franchisor.

  1. Financial Statements

The financial status of the franchisor is provided under this section of the franchise disclosure document. Also, the audited financial statements for the last 3 years are attached here. This guides the franchisee in taking informed investment decisions, thus protecting him/her from bankruptcy related problems which may result.

  1. Contracts

Under the contracts section, all information regarding the agreements to be entered into between the franchisee and franchisor is made available.

  1. Receipts

The acknowledgement of the receipt of the franchise disclosure document is made. This is through the signing of a receipt.

Every franchise disclosure document is expected to have these contents as they define the terms of agreement for ownership of the franchise opportunity. If these conditions are acceptable to the prospective franchisee, he/she may choose to sign the franchise contract, thus marking the commencement of business.

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