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Monday, October 14, 2013

Fundamentals of the Franchise Disclosure Document

At the start of every franchise relationship, the prospective franchisee is given the Franchise Disclosure Document ("FDD") which discloses all the requirements in the pending franchise relationship. Often this document is difficult to navigate for both the franchisor and the franchisee. Over the course of the next several weeks, we will break down each item in the FDD and give a summary of what can be expected and what is required within the FDD.

The FDD came about due to the federal government's concern about fraud and corruption in the franchise industry. Accordingly, since 1979, the Federal Trade Commission requires all franchisors to provide a disclosure document to all prospective franchisees. In July 2007, the FTC updated their requirements and renamed the requirements as the FDD. The general purpose of the FDD is to require franchisors to disclose information the federal government believes will reduce fraud and assist franchisees’ in making informed decisions about whether to invest in a particular franchise. The FDD is broken down into 23 Items. Each item addresses a specific topic. With respect to each topic, there are two important perspectives to consider: first is the franchisee’s perspective and second the franchisor’s perspective. Each upcoming post on the FDD will take a brief look at each of the 23 Items from each of these perspectives.

We look forward to sharing our understanding and perspective on the FDD.