What is a Franchise Disclosure Document Review?
A Franchise Disclosure Document (FDD) is a legally-required document that outlines the most important information that a franchisor needs to share with a franchisee so that they are well informed before agreeing to the sale of and investment in the franchise.
Franchisors must share the FDD with the franchisee at least 14 days prior to it being signed, and franchisees can request a copy of it.
Reviewing an FDD is important to do. Read the rest of this article to find out what’s typically included in an FDD and how to review it properly. We’ll also look at why you should consider hiring a legal professional for assistance and peace of mind.
What Information is in a Franchise Disclosure Document?
An FDD contains 23 important points. Here’s a summary of what they contain.
- The length of time in which the franchisor has been operating the business, and how much experience they have with running the franchise system.
- Information about any pending litigation or other legal actions that have been taken against the franchise.
- Information about the franchise’s bankruptcy, if relevant.
- If there are any initial fees or other expenses the franchisee will have to pay.
- An estimated initial investment, which can include an amount range.
- Details about sourcing restrictions or mandatory purchases that are imposed on the franchisee, such as in terms of working with approved suppliers.
- The franchisee’s duties and responsibilities.
- What assistance the franchisor will provide to the franchisee.
- Geographical or territory restrictions that have been placed on the franchisee.
- What trademarks are registered to the franchise and the disclosure of other protected information, such as patents.
- Limitations on what the franchisee is allowed to sell.
- How the contract can be renewed or terminated as well as dispute resolution.
- Information of any public figure who is linked to the franchise.
- Where information about company-owned outlets are disclosed.
- Disclosure of the franchisor’s financial statements, which must be shared with the franchisee, such as cash flows and balance sheets.
- Disclosure of contracts, such as the franchise agreement and other agreements.
- Disclosure of any other information the franchisee requires.
Can You Review a Franchise Disclosure Document?
Not only can you review an FDD, but you should do it to protect your interests. Usually, you’ll have 14 days in which to review all the document’s terms. Here are some important things to look for in an FDD.
Review the Franchise’s Financial Condition
Take your time to go through all the franchisor’s financial documents so that you can see how stable the franchise is. You should also examine all the earnings data so that you get a good picture of what you could potentially earn as a franchisee in the future.
Consider any Restrictions
You should check territory and supplier restrictions, as well as any limitations in terms of what services the franchisor provides to new franchisees. This should be aligned with your requirements.
Check the Litigation History
If the franchise or franchisor has been involved in a high number of litigation cases, this is a red flag that could land you in problems in the future.
Note the Franchisor’s Experience
You should pay attention to how much experience the franchisor has with running the franchise. You also want to ensure that their values are aligned with yours for a satisfying working relationship.
Understand Your Duties
As a franchisee, you should have clarity about your duties, responsibilities, and any fees that you’ll have to pay. Everything should be outlined in a transparent way so you don’t feel uncertain.
Do You Need a Lawyer to Review Your Franchise Disclosure Document?
You might think you don’t need a lawyer to review your FDD, but you should. Although this document might seem straightforward, with only 23 points to review, it’s a legally binding contract that can be complex. It could also have future implications you might not realize at the start of the agreement.
Since this document is meant to be transparent and protect you, you want to ensure that you’re happy with all of its terms.
Here is how a lawyer can give you a thorough review of your FDD:
- They’ll unpack any legal or complex language that can result in misinterpretations.
- They’ll spot red flags, such as broad non-compete clauses that can harm or restrict your career opportunities in future.
- They’ll explain all your duties and rights under the agreement.
- They’ll ensure the FDD meets all franchise laws so that you remain compliant.
- They’ll prevent you from overlooking anything important in the FDD, which is possible without a legal background.
- They’ll help you negotiate any terms in the FDD for a better deal.
Where Can You Hire a Lawyer for a Franchise Disclosure Document Review?
If you need to hire a lawyer for a review of your FDD, there are online legal marketplaces like ContractsCounsel that make the process of finding a professional lawyer much easier than it used to be.
You don’t have to do any research into potential lawyers in your area, because the platform gives you all the data you need to find the best lawyer for your needs.
ContractsCounsel is one of the largest online legal marketplaces where clients can quickly connect with vetted lawyers who have years of experience in conducting contract reviews. With their high level of experience and expertise, they’ll assist you in your franchise investment.
Simply follow these steps to get your FDD reviewed.
1. Post your project on the ContractsCounsel marketplace. It’s free!
2. Include a bit of information about what you require so lawyers know how to help you quickly.
3. Wait to receive lawyer bids. You’ll receive multiple bids from lawyers on the platform who want to assist you.
4. Review the lawyers' profiles based on criteria such as their location, experience, expertise, and client ratings.
5. Choose the best lawyer for your purposes, and get peace of mind that your contract is professional, fair, and legal before you sign it.
