Franchise Disclosure Document

A franchise disclosure document (FDD) is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States. It was originally known as the Uniform Franchise Offering Circular (UFOC) (or uniform franchise disclosure document), prior to revisions made by the Federal Trade Commission in July 2007. Franchisors were given until July 1, 2008 to comply with the changes.

The Federal Trade Commission Rule of 1979 which governs disclosure of essential information in the sale of franchises to the public underlies the state FDD's and prohibits any private right of action for the violation of the mandated disclosure provisions of the FDDs. Therefore, the FDD implies that only the federal government or the state governments have the right to sue and negotiate consent decrees and rescissions with those franchisors who violate the provisions of the FTC Franchise Rule and the Franchise Disclosure Document (FDD).

The Franchise Rule specifies FDD disclosure compliance obligations as to who must be the one to prepare the disclosures, who must furnish them to prospective franchisees, how franchisees receive the disclosures, and how long franchisees must have to review the disclosures and any revisions to the standard franchise agreement.

The FDD underlies the franchise agreement (the formal sales contract) between the parties at the time the contract is formally signed. This franchise sales contract governs the long-term relationship and contains the ONLY promises and obligations of the parties to each other that will remain in effect over the stated time term of the contracts – the terms of which generally range from five to twenty years. The contracts cannot be changed unless there is agreement of both parties.

Under the Franchise Rule, which is enforced by the Federal Trade Commission (FTC), a prospective franchisee must receive the franchisor’s FDD franchise disclosure document at least 14 days before they are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. The prospective franchisee has the right to ask for (and get) a copy of the sample franchise disclosure document once the franchisor has received the prospective franchisee’s application and agreed to consider it. The franchisor may provide a copy of its franchise disclosure documents on paper, via email, through a web page, or on a disc. Franchise disclosure document requirements.

According to the Federal Trade Commission, there are 15 states that require franchisors to give a FDD to franchisees before any franchise agreement is signed. Thirteen of those states require that they be filed by a state agency for public record.

All franchise buyers should use information contained in the FDD in their franchise research.

Read more about Franchise Disclosure Document:  Franchise Disclosure Document Requirements

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