FDD: The New Format for Franchise Disclosure


Guest Post by Joel Libava, My co-franchise blogger at Allbusiness.com

Hello FDD! Goodbye UFOC… Franchise Legal Documents

July 1st marked the day that the UFOC {Uniform Franchise Offering Circular} was officially retired. It was the legal document that the Federal Trade Commission {FTC} required franchise companies that were registered in the US to put together for distribution to interested franchise prospects, during the official sales process.

When the Federal Trade Commission overhauled its “Franchise Rule” last year, it came up with a new disclosure format. It was one which adopted the UFOC disclosure requirements, but added to them as well. And it gave a disclosure document prepared under these new requirements a new, easy to remember name: “Franchise Disclosure Document” (or “FDD” for short).

These are the items that are to be included in every FDD:

1. The Franchisor, its Predecessors and Affiliates

2. Business Experience

3. Litigation

4. Bankruptcy

5. Initial Franchise Fee

6. Other Fees

7. Initial Investment

8. Restrictions on Sources Of Products And Services

9. Franchisee’s Obligations

10. Financing

11. Franchisor’s Obligations

12. Territory

13. Trademarks

14. Patents, Copyrights and Proprietary Information

15. Obligation To Participate In The Actual Operation Of The Franchise Business

16. Restrictions On What The Franchisee May Sell

17. Renewal, Termination, Transfer And Dispute Resolution

18. Public Figures

19. Earnings Claims

20. List Of Outlets

21. Financial Statements

22. Contracts

23. Receipt

The major differences between the now old UFOC, and the new FDD are:

1. The new law encourages more disclosure about earnings. Information about business costs can be freely disclosed, and financial results can be given in the FDD for a subset of franchisees without having to compare them to the entire chain.

2. The FDD and other informational documents may be sent electronicallya change that will really save franchisors money and maybe even encourage them to send information to prospects sooner.{It is also pretty darn Green!}

3. Franchisors must disclose contact information for all of the franchisee associations in their system, including ones approved by the franchisor as well as independent associations. Before, prospects had to find independent associations on their own.

4. If a franchisor’s corporate parent guarantees the business or provides supplies to franchisees, its contact and financial information has to be disclosed. Previously, corporate parents did not have to be disclosed, at all.

5. More litigation disclosure is now required. Franchisors must list suits they’ve filed against franchisees over the previous year.

The FDD is a welcome change to the UFOC, which has been around for many years, and should provide a little more transparency for potential franchise buyers.

Let’s now move on to some serious stuff. I just launched yet another franchise website. Hopefully you have seen my 3 niche websites that were just launched a few weeks ago:

www.GreenFranchiseDirectory.com

www.MondayThruFridayFranchises.com

www.FranchiseFlavors.com

If you are a franchisor, or a supplier to the franchise industry, please let me help you spread your message with one of these niche franchise websites. I am doing some interesting things in conjunction with them.

Oh Yeah. Here is the newest one. I even have a helper- www.FranchiseFollies.com

Thanks, Joel! Great article.

WHAT DO YOU THINK? LEAVE A COMMENT.

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