Understanding FDD (Franchise Disclosure Document)

Understanding FDD Components

The Franchise Disclosure Document (FDD) is a legal disclosure document received by interested entrepreneurs seeking to buy a U.S. franchise.

Franchisors must give a copy of the FDD to interested franchisees as part of the pre-sale due diligence. FDD contains vital information on the franchise investment, allowing franchisees to evaluate their decision well.

Here are the basic components or sections of an FDD:

  • The company’s history: includes information on the franchisor, parent, predecessors, and affiliates.

  • Business experience: information on the experience of the franchisor, executives, directors, and officers.

  • Litigation: lists relevant current or past criminal and civil litigation for the franchisor and the management.

  • Bankruptcy: involves information on the franchisor and management members who have gone through bankruptcy.

  • Initial fees: displays information on the initial franchise fees and factors determining the amount.

  • Other fees: describes all recurring payments.

  • Initial investment: displays tabled expenditures the franchisee requires to establish the franchise.

  • Restrictions: discusses the restrictions set in place by the franchisor regarding product or service sources.

  • Franchisee’s obligations: states where franchisees can find their agreed-upon obligations in the franchise agreement.

  • Financing: involves the terms and conditions of the franchisor’s financing arrangements.

  • Franchisor’s assistance: discusses the services the franchisors will provide the franchisee, such as advertising and training.

  • Territory: discusses exclusive territories.

  • Trademarks: discusses the franchisor’s trademarks and trade and service names.

  • Patents, copyrights, and proprietary information: discusses how the franchisee can use the franchisor’s patents and copyrights.

  • Obligation to participate in the franchise’s operations: describes the franchisee’s obligations in the actual operation of the business.

  • Restrictions on what the franchisee can sell: deals with restrictions on goods and services the franchisee can offer customers.

  • Renewal, termination, transfer, and dispute resolution: discuss the terms for renewal or termination and the franchisee’s rights and restrictions if there are disagreements with the franchisor.

  • Public figures: reveals information on payments for public figures like celebrities.

  • Financial performance representations: an optional section where the franchisor can provide information on unit financial performance.

  • Outlets and franchisee information: existing franchise’s locations and contact details.

  • Financial statements: audited financial statements for the past three years.

  • Contracts: all contracts the franchisee will need to sign.

  • Receipts: proof that the franchisee has received a copy of the FDD.

If you have any questions or concerns regarding the FDD or franchises, do not hesitate to contact us. We specialize in finding tailor-fit franchises for your needs.

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