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The 23 Items Your Franchise Disclosure Document Must Include The 23 Items Your Franchise Disclosure Document Must Include

The 23 Items Your Franchise Disclosure Document Must Include

  1. The Franchisor and Any Parents, Predecessors, and Affiliates
    1. What is your current business name and principal address? 
    2. Do you have a parent company or any affiliate that will be providing products or services to the franchisees? 
    3. Were you owned by any other entity (or known by any other name) within the last 10 years? 
    4. Will the franchise be identified by any other name to conduct its business? 
    5. Who is your agent for service of process?
    6. What type of business are you?  (e.g., corporation, partnership, LLC) and where were you organized?
    7. What type of business will franchisees conduct?
    8. Do you (as the franchisor) conduct the same type of business?  Do you conduct any other business? 
    9. What is the general market for your business – is it a developing (or developed) market; who will the products/services be sold to; are the sales seasonal, etc.
    10. Are there any laws or regulations specific to the industry?
    11. Who is your competition?
  2. Business Experience
    1. Identify by name the directors, trustees, general partners, principal officers, and any other individuals who will have management responsibility relating to the sale or operation of the franchise.
      1. For each person listed, state his/her principal positions and employers during the last five years, including each position's starting date, ending date, and location.
  3. Litigation
    1. Are you (or any predecessor, parent, affiliate, director, trustee, general partner, principal or officer) a party to any pending litigation?
    2. Have you (or any predecessor, parent, affiliate, director, trustee, general partner, principal or officer) have been involved in any litigation in the last 10 years?
  4. Bankruptcy
    1. Have you (or any individual who will have management responsibility relating to the sale or operation of the franchise system) filed for bankruptcy in the last 10 years, or been involved with a company that has filed for bankruptcy? 
  5. Initial Fees
    1. What are the initial fees you will require your franchisees pay to enter the franchise system?  Are they paid in lump sum or can they be paid through installment payments?
    2. Will you provide any refunds?  For what circumstances?
  6. Other Fees
    1. What other fees will you require your franchisees pay on a recurring basis (e.g., monthly royalty fees, advertising fees, technology fees, training fees, etc)? 
  7. Estimated Initial Investment
    1. What will the franchisees’ estimated initial investment be to start your business? 
    2. Consider the following (but not exhaustive):
      1. Initial franchise fee;
      2. Training expenses (including travel to attend);
      3. Real property (whether purchased or leased);
      4. Equipment, fixtures, other fixed assets, construction, remodeling, leasehold improvements and decorating costs;
      5. Inventory to begin operating;
      6. Security deposits, utility deposits, business licenses, and other prepaid expenses; and
      7. Advertising expenses.
  8. Restriction on Sources of Products and Services
    1. Will you require franchisees to purchase or lease certain goods, services, supplies, fixtures, equipment, inventory, computer hardware and software, real estate, or comparable items related to establishing or operating the franchised business? 
    2. What is the process for selecting approved suppliers?
    3. Do you have any financial interest in the source of the products/services required?  Do you receive any rebates from purchases? 
  9. Franchisee’s Obligations
    1. What are the franchisees’ obligations regarding: 
      1. site selection; pre-opening purchases/leases; site development and other pre-opening requirements; initial and ongoing training; grand opening; fees required to be paid to you; compliance with your standards and policies; trademark and proprietary information; restrictions on products/services offered; warranty and customer service requirements; franchisees’ territories and any sales quotas; any ongoing product or service purchases required; maintenance, appearance and remodeling requirements; insurance required by franchisees; advertising; indemnification; owner’s participation in the management and staffing requirements; records and reports; inspections and audits; transfer requirements; renewal requirements; post-termination obligations; non-competition covenants; dispute resolution; and any guarantees required
  10. Financing
    1. Will you offer any direct or indirect financing? 
  11. Franchisor’s Assistance, Advertising, Computer Systems and Training
    1. What services will you offer to the franchisees?
      1. Any pre-opening assistance (e.g., site selection)?
      2. Any on-going assistance?
      3. What training will you provide?
      4. What advertising assistance will you provide or require? 
    2. Any mandatory computer or software purchases required? 
    3. Do you have an “Operations Manual”? 
    4. What is your training program for franchisees?
  12. Territory
    1. Will franchisees receive a certain defined territory? 
    2. Is the territory an exclusive territory?
      1. Will you reserve some rights to offer services/products within the franchisees’ territory?
      2. Will other franchisees be able to offer products services within the territory?  Can they advertise within the territory? 
  13. Trademarks
    1. Are your trademarks and tradenames registered with the United States Patent and Trademark Office?
    2. What is the registration number?  Who own the trademarks?  What is the date of registration? 
  14. Patents, Copyrights and Proprietary Information
    1. Is there any other intellectual property that you own related to the franchise?
  15. Obligation to Participate in the Actual Operation of the Franchise Business
    1. What are your expectations for how much time you expect your franchisees to devote to personally managing the business?
    2. Do franchisees have direct, onsite management responsibilities? 
    3. If not, who will be required to manage the business?  Will you require that the manager have equity interest in the franchisee? 
  16. Restrictions on What Franchisees May Sell
    1. Do you want to place any restrictions on what the franchisees may offer at the business?  For example, franchisees may sell only or all approved goods or services. 
  17. Renewal, Termination, Transfer and Dispute Resolution
    1. Can the franchise business be renewed?  What are the terms for renewal?
    2. Can franchisees terminate the agreement?  Under what circumstances?
    3. What are the terms by which you can terminate the agreement?
    4. Can a franchisee transfer the business?  Under what terms?  Will you retain a right of first refusal? 
    5. What happens if a franchisees passes away?
    6. What are the covenants against competition that you will require?  During the term of the agreement?  After the agreement ends?
    7. How will disputes be addressed?  Through litigation?  Arbitration? 
    8. Where will litigation/arbitration be held?  Under what law? 
  18. Public Figures
    1. Do you plan to use any “public figures” to help promote and advertise the business?
  19. Financial Performance Representations
    1. Do you intend to make any financial performance representations? 
  20. Outlets and Franchisee Information
    1. You will need to provide information about the number of franchised and company-owned locations for the previous 3 fiscal years.
  21. Financial Statements
    1. You must include audited financial statements. You must include audited financials for any parent or affiliated company that provides products or services to the franchisees. 
    2. Statements include: balance sheet for previous 2 fiscal year ends, statements of operations, stockholders’ equity and cash flow for the previous 3 fiscal years. 
    3. New franchisors may be able to utilize the phase-exception to the audited statement requirements, but some states do not recognize this exception. 
  22. Contracts
    1. You must attach all proposed agreements relating to the franchise offering, including the Franchise Agreement.
  23. Receipts
    1. You must have franchisees sign two copies of a receipt used to evidence that they received the FDD. 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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