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Franchisors, Are You Up to Speed on the New FDD?

Written on April 25th, 2008 by Joseph in Franchise Industry.

The new changes in the FDD have been long overdue. The amendments that the new FTC ruling has brought will change the face of franchising field and make it more transparent. That, in turn, will save franchisees from unscrupulous franchisors out there. So, if you want to know about the changes that the new FDD will bring with it, here is a quick review of some of them that will affect the franchisor.

• The document can be electronically sent and the receipt of acknowledgment can also be received the same way. It also does away with the clause that the disclosure document has to be given after face-to-face meeting between people looking to buy a franchise and those offering the franchise business for sale.
• Large investors, who are making an investment of more than $1 million apart from franchise fee and other fees, are exempted from getting the FDD as a pre-requisite to signing any franchise agreement.
• If the parent company of the franchisor has any post sale obligation for the franchisor or has a guarantee for the obligations of the franchisor, then the parent company, its financial details as well as management details need to be furnished.
• Not only the cases that were filed against a franchisor, but also the cases that were filed by the franchisor against the franchisees have to be reported in the relevant section.
• The names and history of all the people dealing with selling and running of the franchise wing of the business need to be divulged. Giving a list of franchise brokers is not mandatory anymore.
• The “earning claim” has been made easier for the franchisor. They now can give the earning claims of a particular sub group from a given area and only include the name of the locations that have reached that level of earning. But they are required to give the characteristics of that sub-group and state why they are different than other groups in the franchise system.
• If the franchisor or its parent company (obligated to the franchisor’s performance in any way) has faced any government litigation in the last 10 years, then it has to be mentioned.
• If any franchisor employee has a stake in any of the approved suppliers, then the names of the supplier and the employee have to be furnished.
• If any exclusive territory is not being given, then a warning needs to be given on the same.

If you need help navigating the changes, consider brandEXPANSION’s franchise enhancement services. Contact us to learn more.