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What is a Franchise Disclosure Document?

Posted by Jonathan Krems | Oct 19, 2021 | 0 Comments

In this week's Freedom Friday blog and e-mail newsletter, I want to talk about something that I was discussing with a prospective client, and that is franchising.  Many small business owners are interested in buying a franchise to be their small business.  Rather than starting a small business from scratch, they desire to buy a franchise.  One of the very first steps to buying a franchise is reviewing the Franchise Disclosure Document (FDD).  In today's Freedom Friday blog and e-mail newsletter, I want to talk about what a Franchise Disclosure Document (FDD) is, and why the FDD is important in the franchising process.

The FDD is a legal disclosure document which the franchisor must provide you before you sign the franchise agreement or pay money to the franchisor.  The FDD contains 23 disclosures which provide detailed information about the franchisor, the franchise system, and the business opportunity you might be buying.  Also, the FDD will include a copy of the franchise agreement, and any other legal documents which you will be required to sign if you choose to become a franchisee.

It is important to have an attorney review your FDD and the franchise agreement.  There are many items which an FDD must include.  Here are some of the areas which need to be covered in your FDD:

The first item which should be covered in the FDD is the franchisor, along with the franchisor's predecessors and affiliates.  This item will give you the history of the franchise system and its operations.  There should also be information on the business experience of the franchisor's management team.

Next, the FDD should include information about any litigation or bankruptcies that the franchisor may have been involved in.  You should pay attention to any litigation between the franchisor and its franchisees.

An important item within the FDD are fees.  Both initial fees, and other fees.  You need to know, as a prospective franchisee, how much the franchise is going to cost you.  Each of these initial fees are usually required to be paid before you open the franchise business.  Not only are there initial fees, but there also can be recurring fees, such as royalty fees and advertising fees.  The FDD should also have a section on your initial investment as whole, not just your initial fees, but also capital investments you may be required to make as a franchisee.

The FDD should have a section on restrictions on sources of products and services.  This section provides information about the products and services you can and cannot sell from your franchise.  There may be designated products that you will be required to purchase directly from either the franchisor or from a designated supplier.

These are just many of the examples of information which needs to be provided to you as a prospective franchisee in the FDD.  The FDD should also include information on financing, territory, and many other areas.

If you are interested in starting a small busines anywhere in Oklahoma, or if you have a small business and you are looking to grow, please feel free to contact me at [email protected] for a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...

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