The Franchise Disclosure Document (FDD)

Prior to the 1970s and the proven success of McDonald’s, there was little franchising momentum in the U.S. This was mostly due to unscrupulous people who ran scams under the guise of a franchise operation and gave franchising a bad name. And, because of the abuse back then, the franchise industry sometimes still suffers that poor perception today. However, upon investigation, one quickly realizes that great franchise companies are anything but unscrupulous.

In 1978, the Federal Trade Commission stepped in to halt these crimes and installed what is known as the FTC Rule. This rule requires all franchisors submit a document called the Franchise Disclosure Document (FDD) to all candidates. The purpose of the FTC Rule (manifested in the FDD) was to provide enough information and transparency so the prospective franchisee could make an informed decision about purchasing that franchise. The FDD was originally known as the Uniform Franchise Offering Circular, or UFOC.

The FDD serves as a protection for the individual against making a decision based on information not supported by fact. The FTC Rule requires franchisors to provide the FDD to franchise candidates at least 14 calendar days prior to a sale or the first personal meeting. The recipient is required to sign a receipt of the FDD. A franchisor’s FDD must be updated on an annual basis, or sooner if certain conditions are met.

At the Franchise Academy, we have developed a free document that breaks down the 23 items in the FDD into 5 categories making it easier to comprehend and digest. Our document gives you the tools to understand: