Franchise Disclosure Document (FDD), formerly called the Uniform Federal Offering Circular, (UFOC) provides prospective franchise investors with information about a prospective franchise. Company history, background information, risk factors and financial statements are just a few of the items covered.
To protect and inform the investor, the Federal Trade Commission (FTC) determined that a standardized disclosure must be in place for companies to offer their businesses as a franchise. Because the format is standardized, it makes for easy side-by-side comparisons between companies.
The FDD is provided to potential investors of franchises. Which means that this document is usually given to prospective investors who have made efforts to qualify for any particular franchise. Usually a dialog has been established between the investor and the franchisor before the FDD is requested.
Regarding the format of the FDD. It consists of cover pages, table of contents, main body and exhibits.
The cover pages are straight-forward. They contain the name, address, contact information and basic business information. It also stresses how the FDD should be used and where to go for additional help. There is also a state cover page which informs the investor that there may be state franchise laws. Additionally there is a paragraph on Risk Factors. This area points out potential risks inherent in the particular investment.
The table of contents simply list out the items that make of the body and exhibits of the FDD.
The main portion of the FDD is comprised of twenty-three items.
Item 1: The Franchisor and any Parents, Predecessors and Affiliates
Item 2: Business Experience
Item 3: Litigation
Item 4: Bankruptcy
Item 5: Initial Franchise Fee
Item 6: Other Fees
Item 7: Estimated Initial Investment
Item 8: Restrictions on Sources of Products and Services
Item 9: Franchisee’s Obligations
Item 10: Financing
Item 11: Franchisor’s Assistance, Advertising, Computer Systems and Training
Item 12: Territory
Item 13: Trademarks
Item 14: Patents, Copyrights and Proprietary Information
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
Item 16: Restrictions on What the Franchisee May Sell
Item 17: Renewal, Termination, Transfer and Dispute Resolution
Item 18: Public Figures
Item 19: Financial Performance Representations
Item 20: Outlets and Franchisee Information
Item 21: Financial Statements
Item 22: Contracts
Item 23: Receipts
In addition, there may be a number of Exhibits. These may include:
List of State Agencies/Agents for Service of Process
Franchise Agreement with Exhibits
Financial Statements
Lease
Collateral Assignment of Lease
Operations Manual
List of Franchisees, Current and Former
Release
Assignment of Franchise Agreement
State Addendums
Spousal/Partner Consent
To be able to invest in any franchise business, you will be required to have received the FDD. By familiarizing yourself with the format, you will have a better understanding of the franchise purchase process.
