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What is the FDD? A Guide for Franchisees

Franchisee and Franchisor going discussing what the FDD is, and going over franchise opportunity and numbers
Franchise Disclosure Document Financials

If you're considering buying a franchise, you've probably come across the term "FDD" in your research. You may have asked yourself, "what is the FDD?" In this blog post, we are hoping to help you find the answers to your question.

We recently had a client who was interested in buying a franchise but wasn't quite sure where to start. They had done some research online and had come across the term "FDD," but didn't really understand what it meant or why it was important. That's when they reached out to our attorneys, at Lopes Law.

We explained to our client that the FDD is a critical document for anyone considering buying a franchise. It contains important information about the franchise system, the franchisor (including their background, experience, bankruptcies and any litigation), financial information, and the terms of the franchise agreement. It's difficult to make an informed decision about whether a particular franchise is a good fit, without reviewing the FDD carefully.

Our client was relieved to learn that the FDD was designed to protect them, as a potential franchisee.

In this blog post, we'll dive deeper into the topic of franchising and the FDD. We'll explain what the FDD is, what information it contains, and why it's so important for anyone considering buying a franchise. Whether you're a seasoned entrepreneur, a first-time business owner, or a budding entrepreneur leaving Corporate America to start your own business, understanding the FDD is key to making an informed decision about investing in a franchise.

What exactly is the FDD, and why is it important?

FDD stands for Franchise Disclosure Document. It's a legal document that franchisors are required to provide to potential franchisees under the Federal Trade Commission's (FTC) Franchise Rule. The FDD contains important information about the franchise system, the franchisor, and the terms of the franchise agreement.

By law, franchisors are required to provide the FDD to potential franchisees at least 14 days before the franchisee signs any agreement or pays any money to the franchisor. The purpose of the FDD is to help potential franchisees make informed decisions about whether to invest in a particular franchise. This gives the franchisee time to review the document carefully and ask questions if there's anything they don't understand.

You should have a franchise attorney help you to review the FDD and franchise agreement to help you understand the complex documents, and to help avoid disputes with the franchisor later. Contact us now (or after you've finished this post), to get help with reviewing your FDD or for franchise agreement review.

So what information does the FDD contain? Here are some of the key sections:

1. Franchisor information:

This section provides information about the franchisor, including its business history, litigation history, and bankruptcy filings.

2. Franchisee obligations:

This section outlines the franchisee's obligations under the franchise agreement, including any fees or payments the franchisee will be required to make.

3. Territory:

This section describes the territory that the franchisee will be allowed to operate in.