The Franchise Disclosure Document (FDD) can make or break a potential franchise. The Federal Trade Commission requires each franchisor to provide the FDD at least 14 days before the franchise agreement can be signed.
Full disclosure is necessary, as franchisors for obvious reasons hold more power in this business relationship. A franchisee should be made aware of all potential scenarios and possible outcomes before delving into an entrepreneurial endeavor.
What Are Some Examples?
A franchise disclosure essentially alerts a franchisee to information that cannot be easily found on his or her own. As an example, full disclosure should include a list of the fees to start up the franchise and the fees that must be paid to the franchisor to begin the enterprise.
Other topics that the FDD must discuss could include:
- Royal payments
- Fees for advertising
- Limits on the types of products sold
- Restrictions on how business is operated
- Standards of appearance
- Any additional contractual obligations
There are many items over which a franchisor can still retain control, even the length of years permitted to franchise. If the franchisee fails to hold up to these terms of the contract, then the franchisor can cancel the contract or refuse to allow the franchisee to renew. It will be up to the franchisor’s discretion. Furthermore, if the franchisee finds that the franchisor has not offered full disclosure on some items, then the franchisee may be able to rescind the contract. Again, it is best that you consult with an attorney first so that you know what to expect at the onset.
We Can Address Your Legal Concerns—Call Us!
Our Los Angeles franchise attorney at Franchise Legal Support offers legal counsel for all types of franchising matters. If you are considering whether or not franchising is right for you, we urge you to contact us to discuss your options. We can help you stay one step ahead so that you can avoid any pitfalls along the way.