Franchise Disclosure Documents – also referred to as FDDs – provide potential buyers of franchises with the information they need to make a well-informed decision regarding their purchase. Franchisors – the individuals or entities that own franchises – must by law provide franchise disclosure documents to potential buyers before signing a franchise agreement, which is the contract that establishes the terms that apply to the relationship between a franchisor and a franchisee.
In this article, you will learn what you need to know about FDDs directly from an experienced Florida Franchise Attorney. If you are looking to purchase a franchise in Florida, read on to learn how to make sure you do not end up purchasing a problem instead of a business.
The Franchise Rule Governs Franchise Disclosure Documents
The Franchise Rule is, essentially, a series of provisions that establish the procedural and informational requirements to which franchisors must adhere when it comes to FDDs, including the manner in which franchisors must provide these documents to franchisees, the timeframe within which franchisors must furnish the documents, etc.
It is important to note that violations of these requirements by franchisors generally do not give rise to private causes of action. If a franchisor violates these requirements, only the state government and the federal government have the right to sue them. There is, however, an exception to this rule, and it applies in states that have laws that expressly reinforce franchise disclosure documents instead of establishing their own requirements. Only in these states will violations of the Franchise Rule give rise to private causes of action.
Items Franchise Disclosure Documents Must Include
The purpose of FDDs is to help potential franchise buyers determine whether buying a particular franchise is the right move for them. This helps prevent both bad investments and fraud. Therefore, to be valid, disclosure documents must include certain information. In total, a franchise disclosure document must contain 23 items, which are:
- Description of the franchisor and affiliates
- Information regarding the history and experience of the business
- Litigation history of the business
- Bankruptcy history of the business
- Details on initial franchise fees
- Details on additional fees
- Initial investment to purchase the franchise
- Restrictions regarding the sources of products
- The obligations franchisees must fulfill
- Financing details
- Details on advertising, assistance, training, and computer systems provided by the franchisor
- Copyrights, patents, and other intellectual property
- Franchisee’s obligations to be involved in the day-to-day operations of the business
- Restrictions regarding the product menu
- Financial performance representations
- Information on transfers, renewals, and termination of the franchise agreement as well as dispute resolution methods
- Details about public figures
- Information about existing franchises
- Financial statements
- Contracts that must be signed
- Acknowledgment of receipt
Contact a Top Miami Franchise Lawyer Today
If you are preparing to purchase a franchise, one of the most important steps you need to take is to make sure you are buying a good business and not a problem. FDDs are only useful if you know how to use them. In other words, you need to be able to decipher the information contained in this type of document, which can often be complex. However, you do not have to do this alone. If you have found a franchise you wish to buy, you should hire an experienced Florida Franchise Lawyer that can help you determine whether buying it is a good idea. I can be that lawyer. At my law firm, Jurado & Farshchian, P.L., my team and I help many franchise buyers every year, so I know the process very well. I will make sure you do not purchase a nightmare instead of the business of your dreams.