5 Quick Facts About a Franchise Disclosure Document (FDD)

Between starting a business from scratch and adopting a proven model, you may choose to go with the latter and buy a franchise.  Once you have settled on this mode of entrepreneurship, you will begin the process of researching franchise options to find the right fit for you. 

One key law that you will come across is the Federal Trade Commission (FTC)'s "Franchise Rule".  It was promulgated in 1978 and amended in 2007.  The Franchise Rule requires franchise and business opportunity sellers to provide to prospective purchasers with a Franchise Disclosure Document (FDD).

Here are 5 quick facts about FDD's:

1. Franchisors (including subfranchisors) are responsible for providing each prospective franchisee with Franchise Disclosure Documents.

2. FDD's can be furnished by any method, including electronically.  But they must be in writing.

3. FDD's must be provided at least 14 days before a prospective franchisee signs a ginding agreement with a franchisor, or makes payment for a proposed franchise sale.

4. The FDD is required to have a comprehensive cover page, that follows a specific order and form established in the Franchise Rule.

5.  The FDD requires franchisors to provide prospective franchisees with information such as: franchisor's background information, costs of entering into the business, legal obligations of the franchisor and franchisee, statistics on franchised and company-owned outlets, audited financial information, and other material information.

Related Resources:

• Compliance Guide: FTC Franchise Rule [PDF] (16 C.F.R. Part 436)
• 2007: FTC Issued Updated Franchise Rule (FTC.gov)
• Franchise and Business Opportunity FAQ's (FTC.gov)
• What is a Franchise License? (FindLaw's Free Enterprise)
• Franchising Law Overview (provided by Mario L. Herman)
• Contract Negotiation and Formation (provided by Silver, Feldman, Bass & Brams, P.A.)