FDDs are generally 200+ pages in length and many are in excess of 350 pages. The information in the FDD is divided into several parts – a cover page, atable of contents, 23 “Items,” the Franchise Agreement, and various exhibits that provide further clarity. These are briefly described below:
- Items 1 – 2 provide an overview of the franchise concept, the franchisor (including parents, predecessor companies and affiliates) and the business experience of the senior management team.
- Items 3 – 4 provide information on past litigation and any bankruptcy filings that have occurred in the past several years.
- Items 5 – 7 provide the financial commitments in terms of initial fees, ongoing royalties and estimates of the total investment required to purchase that franchise.
- Items 9 – 15 spell out the contractual obligations between the franchisor and the franchisee.
- Item 17 describes the process of renewing, terminating, or transferring the franchise, and details how dispute resolution will be accomplished.
- Item 18 notes the relationship the franchisor has with any public figures.
- Item 19, or Financial Performance Representations (FPR), if submitted, provides representations of what a prospective franchise might expect to make if he or she purchased this particular franchise.
- Item 20 provides a complete list (as well as contact information) of the franchisor’s existing and former franchisees in the system.
- Item 21 details the franchisor’s financial statements (including audited balance sheets and income statements) for the 3 previous fiscal years.
- Item 22 includes the various contracts that are required to be signed by both parties. These are generally provided as exhibits and include the franchise agreement, promissory notes, confidentiality agreements, personal guaranties, etc.
- Item 23 is a form acknowledging receipt of the FDD by the prospective franchisee.
- The Franchise Agreement in its entirety details the legal contract between the franchisor and franchisee.
* Additional exhibits that provide necessary detail to those items 1 -23.