PREPARING DISCLOSURE MATERIALS: The Franchise Disclosure Document (FDD)
regulation of franchise sales by the federal and state governments requires
that a franchisor provide accurate, detailed disclosure to prospective
franchisees. A Franchise Disclosure Document (FDD), prepared without
detailed attention to applicable regulations, is bound to be defective.
At the Franchise Law Source, we assure that clients’ offering
circulars contain the precise disclosures mandated by the Federal Trade
Commission and state laws. To make this process effective one needs
a detailed understanding of the company’s franchise offering and
of its history and structure. Using templated documents purchased on
the internet, or even samples prepared by competent franchise lawyers,
is risky. Working with an attorney experienced in franchise law and
regulation is the only way to ensure you get the documentation you need.
A Franchise Disclosure
Document must be prepared in strict compliance with the FTC
Franchise Rule as amended. Disclosure made without strict compliance
may seem to make full and fair disclosure. Franchisors must, however,
comply technically and fully with the rule or else pay the price in
franchisee litigation later. Defects in a franchisor’s disclosure
materials are the main bases of franchisees’ claims and lawsuits
against franchisors. Rarely does a plaintiff’s lawyer bring suit
against a franchisor without an allegation that a violation of the FTC
Franchise Rule in the disclosure document amounts to an unfair trade
practice. This is the primary legal theory that franchisor’s face
in franchisee lawsuits, and this is why investing in the drafting of
a solid Franchise Disclosure Document (FDD) is essential for every good
We Make Sure
We take the time to learn our clients’ businesses and their capital
and corporate structures so that we can assist them in complying fully
with franchise sales and disclosure laws. We frequently assist clients
who already have a disclosure document that may need work, and we draft
Franchise Disclosure Documents for new franchisors.
For a new franchisor, creating the company’s first FDD is an important
and expensive proposition. The essence of the franchisor business model
is to use franchisees’ capital to build a distribution system.
This is why franchisor’s balance sheets show so few capital assets.
The brick and mortar, the equipment and rolling stock all belong to
franchisees. It is their investment that enables the franchisor to rapidly
expand the distribution of its brand. In lieu of investing in tangible
capital assets, franchisors must invest in a few very important intangible
assets. These include the intellectual property that makes up the operating
system, training program, and marketing program. They also include the
all important franchise agreement and Franchise Disclosure Document
that the franchisor will use in the sale of franchises. The company’s
long term income is based completely on its ability to sell franchises
to hard working dealers who will become profitable, happy, long-term
distributors of the franchisor’s brand. Don’t underestimate
the importance of the legal details that make up these documents. Spend
the time and the money to insure that your FDD will protect your system
as it grows.
Once drafted, the
Franchise Law Source can Register Your FDD in the States where it is
Protect your investment.
Get your FDD right the first time. Call on the Franchise Law Source
to create franchise documents that comply with the FTC Franchise Role,
the Uniform Franchise Offering Circular Guidelines and all the various
States’ franchise rule.
Once drafted, the
Franchise Law Source can Register Your
FDD in the States where it is required.
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