Home - E-2 Visa: FAQ about the Franchise Disclosure Document (FDD)
Here are some of the most common questions asked about the Franchise Disclosure Document (FDD), an integral part of investing in a franchise on an E-2 visa.
The FDD is a legal disclosure document given to interested franchisees as part of a franchise’s pre-sale due diligence process in the United States. It contains vital information regarding the franchise and everything potential franchisees need to know before making a significant investment. For instance, it contains detailed information about the franchisor, the franchise system, and the terms and conditions of the franchise relationship, among others.
The Franchise Disclosure Document is important since it contains vital information about the franchise, including but not limited to financial details, fees, obligations, and potential risks. Such information is useful for the E-2 applicants who must properly evaluate the franchise or investment opportunity for their E-2 visa. After all, E-2 applicants must demonstrate that they are making a substantial investment in a bona fide U.S. enterprise. Furthermore, the Franchise Disclosure Document can help you avoid surprises and hidden costs that could affect your profitability, and it allows you to compare different franchises properly.
The Franchise Disclosure Document, as previously discussed, contains vital information on the franchise, such as fees, territory, obligations, and more. It is given to potential franchisees at least 14 days before the agreement so they can scrutinize the investment before agreeing to it.
In contrast, the franchise agreement itself comes after reviewing the Franchise Disclosure Document. It is a legally binding contract establishing the legal framework for the franchise and the relationship between the franchisor and franchisee. Both are important. The Franchise Disclosure Document discloses vital information regarding the franchise while the franchise agreement formalizes the franchise operation.
Franchisors are legally obligated to provide you with a copy of their franchise’s Franchise Disclosure Document at least 14 days before the franchise agreement is signed, or any payment is made. This gives you enough time to scrutinize the document and see if the franchise suits you or meets the E-2 visa requirements. It is best to analyze it with the help of an immigration attorney. Alternatively, you can directly request a copy from the franchisor. You can rest assured that they must provide it to potential franchisees.
These are the standard contents of an Franchise Disclosure Document:
Company information and history – the franchisor and any parents, affiliates, or predecessors.
Business experience – professional information about the franchisor, officers, directors, and executives.
Litigation – relevant criminal and civil litigation regarding the franchisor and the management.
Bankruptcy – history of bankruptcy (if any) regarding the franchisor and the management.
Initial fees – information about the initial fees, including factors determining the amounts.
Other fees – description of all other recurring payments franchisees must make.
Initial investment – tabled expenditures the franchisee must make to establish the franchise.
Restrictions – details on the franchisor’s restrictions about the sources of each product or service.
Franchisee’s obligations – reference the parts of the FDD where franchisees can find their agreed obligations.
Financing – terms and conditions of financing agreements offered by the franchisor.
Franchisor’s assistance – describes the assistance the franchisor will provide the franchisee. E.g., advertising, computer systems, training, etc.
Territory – describes exclusive territories.
Trademarks – discusses the franchisor’s trademarks, including service and trade names.
Patents, copyrights, and proprietary information – discusses how the franchisee can use these.
Obligation to participate in the operations – describes the franchisee’s obligation to participate in the franchise’s operations.
Restrictions on goods/services – information on any restrictions on the goods or services franchisees can offer customers.
Renewal, transfer, dispute resolutions, and termination – describes when and whether the franchise can be renewed or terminated and discusses the franchisee’s rights in case of disagreements with the franchisor.
Public figures – discloses the amounts paid to public figures (if any).
Financial performance representations – an optional section where the franchisor can disclose information on unit financial performance.
Outlets and franchisee information – lists existing franchises’ locations and contact details.
Financial statements – displays audited financial statements for the past three years.
Contracts – all the agreements the franchisee will be required to sign.
Receipts – potential franchisees are required to sign this section to prove they have received the FDD.
Firstly, it is important to remember that the Franchise Disclosure Document has standardized information that usually has limited room for negotiation. Thus, major terms like the royalty rate or franchise fee are likely non-negotiable. However, you can consult with your immigration attorney on which sections may have potential for negotiation. For example, you can ask the franchisor for additional financing options, fewer restrictions, longer or renewable terms, extra training, and more.
Our expert team of experienced E-2 visa immigration attorneys and technical writers at E2visafranchises.com is here to help. With over 700 franchises to choose from, we can help you find the perfect franchise for your E-2 visa investment. Message us for a free assessment of your E-2 visa or franchise needs.
Franchisors are legally required to provide potential franchisees with a copy of the FDD at least 14 days before signing the franchise agreement or making any payment. You can request a copy directly from the franchisor or receive it during the due diligence process.
The Franchise Disclosure Document (FDD) provides comprehensive information about the franchise, while the franchise agreement is a legally binding contract that formalizes the franchise operation and relationship between the franchisor and franchisee. The FDD is provided before the agreement to enable potential franchisees to review and evaluate the franchise opportunity.
While major terms like royalty rates and franchise fees are typically non-negotiable, some sections of the FDD may have room for negotiation. Consult with an immigration attorney to identify potential areas for negotiation, such as financing options, restrictions, contract terms, training, and more.
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