When starting a new franchise, a disclosure document for the franchise is essential. What is a disclosure document and what information should it contain?
Franchises are a great option for small businesses. Franchisees don’t need to have business experience in order to operate a franchise. The franchisor will provide you with the resources and support that you need to run their business model.
Franchisees will need to pay a fee for the initial use of the brand, as well as ongoing fees for royalties, marketing and other costs.
You must read the Franchise Disclosure Document before you enter into an agreement with a franchiser. The FDD is an important legal document provided to those interested in purchasing a franchise.
It gives a simple picture of the relationship between the franchisees and franchises.
- READ MORE: See our Franchise Guide
What is a franchise disclosure document?
The Federal Trade Commission requires a Franchise Disclosure Document, or FDD. This document outlines the guidelines of the franchise relationship. A franchisor must provide this document to potential franchisees. The document contains important information about the franchiser.
The terms and conditions of franchise agreements can vary from one franchise to another, but they usually include information such as trademark use, location, general franchise terms, franchisee fees, and other payments, obligations and duties of franchisors, restrictions on the goods and services that are offered, and renewal, termination, and transfer of the agreement.
The Core Purpose for FDD
- Establishes guidelines for franchise relationships.
- Documents required by law
- Disclosure of vital information regarding the franchisor
What is a FDD in business?
The Franchise Disclosure Document (FDD), helps prospective franchisees make informed decisions by providing them with information on the franchisor and franchise system. It also includes the agreements that they will be required to sign. Federal Franchise Rule states that the FDD has to be provided to potential franchisees at least 14 days before they sign a franchise contract or pay any money to the franchiser.
The 14-day period starts when the prospective franchisee signs page 23 of the FDD. The law requires that every FDD include at least 23 disclosures.
