A Franchise Disclosure Document (FDD) is a legal document that a franchisor must provide to prospective franchisees in the United States. The document contains essential information about the franchise, including details about the franchisor, the franchise system, and the terms of the franchise agreement. The FDD is designed to provide transparency and protect potential franchisees by ensuring they have all the information needed to make an informed investment decision.
The FDD is crucial for several reasons. First, it helps protect prospective franchisees by ensuring they receive comprehensive information before committing to a franchise agreement. Second, it promotes transparency and ethical business practices within the franchise industry. Finally, it helps potential franchisees understand the risks and obligations associated with the franchise, enabling them to make a more informed decision.
The Federal Trade Commission (FTC) regulates the FDD under its Franchise Rule. The rule requires franchisors to provide the FDD to potential franchisees at least 14 days before any binding agreement or payment is made. This regulation ensures that prospective franchisees have adequate time to review the document and seek advice from legal or financial advisors if necessary.
The FDD outlines the obligations of both the franchisor and the franchisee. The franchisor's obligations may include providing training, marketing support, and ongoing operational assistance. The franchisee's obligations often include adhering to the franchisor's operational guidelines, paying royalties and fees, and maintaining the quality standards of the franchise.