Franchise Disclosure Document (FDD): What to Include


The Franchise Disclosure Document (FDD) is a legal document a franchisor is required to present to a prospective franchisee. It gives a thorough overview of the franchise company’s operations so the franchisee candidate is well-informed before they decide whether or not to pursue the opportunity.

The FDD must contain specific information known as “items.” There are a total of 23 items that provide important information about the franchise company, like it’s history, it’s financial health, the fees required by the franchisee, and more. Here is a list of each item that is included in a FDD:

Item 1: The franchisor and any parents, predecessors, and affiliates

Provide an overview of your company’s history and if it’s connected to any other businesses.

Item 2: Business experience of the owner and executives

Summarize your professional experience and the experience and qualifications of your company’s executives.

Item 3: Prior litigation

Reveal any civil or criminal litigation your company or executives have previously been involved in.

Item 4: Bankruptcy

Reveal any bankruptcy history for your company or executives.

Item 5: Initial fees

Describe the upfront fees a franchisee will need to pay and how the amounts are calculated.

Item 6: Other fees

Describe any ongoing fees a franchisee will need to pay once they’re in business.

Item 7: Initial investment for the franchisee

Provide an in-depth summary of the initial investment the franchisee will need to make.

Item 8: Restrictions on sources of products and services

Outline any restrictions on where raw materials, products, and services can be purchased from.

Item 9: Obligations for the franchisee

Provide an in-depth summary of the ongoing obligations of your franchisees.

Item 10: Financing arrangements

Describe any financing options you offer your franchisees.

Item 11: Obligations for the franchisor

Provide an in-depth summary of your ongoing obligations to your franchisees (training and advertising, for example).

Item 12: Territory

Outline the territory the franchisee will have and if the arrangement can be changed in the future.

Item 13: Trademarks

Provide a list of the different trademarks you own.

Item 14: Patents, copyrights, and proprietary information

Describe how any information you legally own can be used by the franchisee.

Item 15: Obligation to participate in the actual operation of the franchise business

Outline the level the franchisee is required to participate in the operations of the business.

Item 16: Sales restrictions

Summarize any restrictions on what the franchisee can offer for sale.

Item 17: Renewal, termination, transfer, and dispute resolution

Outline when the franchisee can renew, terminate, or transfer the franchise agreement. Also, describe the process for resolving disputes between you and your franchisees.

Item 18: Public figures

List any company spokespersons and their compensation.

Item 19: Financial Performance Representations (not required)

Project the expected revenue for the franchisee. This section is not required but is very helpful to the potential franchisee in deciding if they want to enter into the agreement.

Item 20: Existing franchise locations

List your existing franchise locations.

Item 21: Financial statements

Provide your audited financial statements for at least the past three years.

Item 22: Contracts

List each contract the franchisee will be expected to sign.

Item 23: Acknowledgement of Receipt

The final section requires a signature from the franchisee, acknowledging they received the FDD.

The FDD is an important resource for a potential franchisee. It gives them all the information they need for a diligent review of the franchise opportunity.

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