According to the Federal Trade Commission, there are 15 states that require franchisees to give an FDD to franchisees before signing a franchise agreement. Thirteen of these states require them to be submitted by a public authority for public registration. A franchise is a license that a party (the franchisee) acquires to allow them to access the proprietary knowledge, processes and brands of a company (the franchisee). This allows the franchisee to sell a product or offer a service under the company name. In exchange for acquiring the franchise, the franchisee usually pays the franchisee a first annual start-up and license fee. Under federal and state franchise laws, an FDD must contain 23 sections, each section being called an « article. » Below is a summary of the 23 pieces of information about an FDD: the date of issuance of an FDD is the date on which the franchisee designates his FDD as complete and compliant with federal franchise laws. Meeting and setting the issue date is a self-certifying process, as there is no federal authority that verifies or registers FDDs. At the state level, in franchise registration states, the FDD must be registered with a public examiner who, under a verification procedure, grants or refuses to register. In these countries known as the country of registration of the franchise, the FDD must be submitted and registered with a national franchise examiner.
The FDD contains comprehensive information about the roles of both parties to the franchise – the franchisor and the franchisee – and aims to enable the potential franchisee to make an honest and informed decision about their investment in the business. The document explains how investing in practice will work for the potential franchisee, which is critical as a franchise is another type of investment/business. We will discuss FDD in more detail below, including what should be in an FDD, when an FDD should be disclosed to potential franchisees, and when an FDD should be updated and registered. All franchisees should use the information contained in the FDD in their franchise searches. Yes. For the purposes of FDD Item 21, the FDD must contain the franchisee`s audited financial statements.