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FDD- Franchise Disclosure Document |
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The FDD - Franchise Disclosure Document, formerly
know at the UFOC -Unified Franchise Offering Circular, is the first document you will review as
a prospect franchisee. It outlines the extent of corporate disclosure
that the Franchisor must provide you with prior to the signing of the Franchise Agreement.
Federal law requires you to have the FDD in your possession at least 14
days before signing. This “disclosure
statement” includes such items as the Franchisor’s obligations, the
Franchisees obligations, territory boundaries, and initial and ongoing
fees to be paid. There are a total of 23 categories of information in
the FDD. If you are sent a FDD by mail, there will probably be a proof of
receipt document to return to confirm the date that it was
received. If you receive the document as an e-mail attached, the
e-mail receipt will serve as the date confirmation. The return of this
receipt does not obligate you to anything. It just confirms that the
franchisor
conformed to the 14 day rule. This is for your protection to
eliminate "sign today- special deal" pressure selling.
Disclosure Requirement & the FTC Rule: Prior
to the FDD and UFOC, Franchisors were regulated by a simpler form of disclosure
known as the “FTC Rule” established in 1979 by the Federal Trade
Commission. Franchisors can still provide a disclosure statement as
outlined by the FTC Rule. Most Franchisors, though, have adopted the FDD
which is a more detailed disclosure format and required by law to
be registered in 13 states known as the registration states. Each state
can impose its own specific regulations and terms within the FDD.
Wisconsin is a registration state. Some or our laws might give you
protection beyond the scope of the FDD. Consultant an attorney
that specializes in franchise law.
NASAA: The governing body that administers and
monitors the FDD is the North American Securities Administrators
Associations (NASAA). NASAA adopted a new version of the UFOC in 1993
and was soon followed by the approval of all the registration states in
1995.
Don't be intimidated by the formal name or size of this document. All FDD's are basically the same. They all have the same 23 sections and it is a lot less scary than it looks. You'll find it's one of your best tools for franchise research and comparison. Below, is a listing of exactly what information all the sections, titled Items, contain. Items 1 through 4: The franchisor's background, the experience of key executives and the company's litigation and bankruptcy history Items 5 and 6: All the fees charged by the franchisor Item 7: An estimate of the total investment needed to establish the business Item 8: Restrictions on the purchase of products to be used and sold in the unit Item 9: The franchisee's obligations Item 10: Financing that the franchisor makes available Item 11: A summary of the services, such as training and site selection, that the franchisor provides in relation to the franchise program Item 12: Territorial protections Items 13 and 14: The status of the trademarks, copyrights and patents associated with the program Item 15: Obligations of the franchisee to participate in the actual operation of the franchised business Item 16: Restrictions on what the franchisee can sell Item 17: Renewal, termination, transfer and dispute resolution provisions Item 18: Public figures used to promote the franchise Item 19: A description of how well the franchises perform financially Item 20: System statistics and lists of franchisees and former franchisees Initially you may want to read through the FDD for general content. This will promote questions that you will want to discuss with the franchise representative. Some questions like, income potential, may need to be researched by talking to franchise owners within the system. If a franchisor gives you any kind of income projection, that information needs to be documented in their FDD. Otherwise, it will be up to you to do your own research by talking to owners. As you get more serious about a particular franchise, re-read the FDD several more times and highlight any passages that you don't understand or have concerns. Discuss these again with the franchise representative or a competent attorney. The FDD can't be changed or customized to your liking. That's why it's called uniform. If you can't live by their rules, then it time to look for other opportunities. Item 20 lists all the franchisees in the particular franchise system today and those that have left the system for whatever reason in the past three years. Utilize this opportunity to talk to owners that are operating in the present franchise system. See if they're happy and successful. Find out what their life is like as an owner, what skills and traits are necessary to succeed. Compare that to what you're trying to achieve through franchise ownership and see how close it comes to a match. A franchise is required to register their concept in every state where they intend on conducting business. The state of Wisconsin requires the FDD of all registered franchises to be on file. For a fee, you can request a copy of the FDD of a particular franchise. If you are a serious candidate, most franchisors will send you their FDD on request. The state of California actually posts the FDD on-line for franchises registered in their state. Take advantage of this FREE service and download the FDD of interest from their site. The franchise may be listed under the corporate franchising entity which may not be the same the individual franchise. |