PREPARING DISCLOSURE MATERIALS: The Franchise Disclosure Document (FDD)

The comprehensive 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 franchisor.

We Make Sure You Comply
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.

Protect Your System
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 required.

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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