How To Create Disclosure Statements for a Franchise
The sales offer of a franchise requires that a regulatory document called a Franchise Disclosure Document be provided to the potential franchisee.During the disclosure process in the US, this document is given to the franchisee.The disclosure of 23 items of information designed to give the franchisee the necessary information to make an informed decision on the purchase of the franchise is included in the agreement.The disclosure needs to be submitted to the franchisee at least 14 days prior to signing any contracts.Franchisors who fail to fully and honestly disclose all of the required information will face federal penalties.
Step 1: Start with the title.
The first section of the FDD is referred to as the "Cover Page," although it may actually be longer than a single page.The details of the FDD are prescribed in the FTC franchise rule.In all capital letters, the title of the document is "Franchise Disclosure Document."
Step 2: The company's basic information should be presented.
Basic identifying information about the franchise that you are selling must be included on your cover page.The franchise name of the franchisor, as well as predecessors and affiliates the type of business organization, must be included in the section on the cover page.
Step 3: Show the trademark.
Franchising is usually expected to use the same trademark as businesses that use a registered trademark.A sample of the franchise trademark is required on the cover page.
Step 4: Provide a brief description of the business.
This is still a very short description, but you need to give more information than just the type of business that was already mentioned.ABC Pizza is a family oriented restaurant that specializes in fresh and authentic pizzas with eclectic topping choices, if you are offering franchise opportunities for a pizza restaurant.
Step 5: The mandatory disclosure statements should be included.
The title page must include six statements.Some of the information must be provided in boldface type according to the instructions.The total investment necessary to begin operation of a franchise is the mandatory statement.The total amount that must be paid to the franchisor or affiliate is included in this disclosure document.All agreements should be read carefully.You must receive this disclosure document at least 14 calendar-days before you sign a binding agreement with the franchisor or an affiliate.No governmental agency has verified the information contained in this document.Don't rely on the disclosure document alone to understand your contract.Make sure to read all of your contract.If you want to buy a franchise, you should show your contract and disclosure document to an advisor.The information in this disclosure document can help you make a decision.The Federal Trade Commission has more information on franchising, such as "A Consumer's Guide to Buying a Franchise," which can help you understand how to use this disclosure document.You can write to the FTC at 600 Pennsylvania Avenue, NW, Washington, D.C. 20580.The FTC has a home page at www.ftc.gov.If you want to learn more about franchising, you can call your state agency or visit your public library.Ask your state agencies about them.
Step 6: The FDD can be received in different formats.
You can provide the FDD on paper, online, or email.If you choose to give the FDD in alternative formats, you should let potential buyers know how it will be received.
Step 7: Provide the information required by the state.
You may be required to provide more information on the cover page if your state has separate franchise disclosure laws.You can add it at the end of the statements.You can use an extra page as needed.
Step 8: The table has a title.
When dealing with federal regulations, you need to follow instructions.The title of the Table of Contents is required.
Step 9: The mandatory section headings should be included.
You are expected to give a full table of contents after the cover page information.The table of contents will be standard because the contents of the FDD are expected to be standardized.The page number of the FDD is where each section begins in your Table of Contents.The Franchisor and any parents, predecessors, and affiliates.There was litigation 4.5 bankruptcies.Initial Fees 6.There are other fees.Estimated initial investment 8.There are restrictions on sources of products and services.Financing 11 is the franchisee's obligation.There areFranchisor's Assistance, Advertising, Computer Systems, and Training.Territory 13There are 14 trademarks.There are patents, Copyrights and Proprietary Information.There is an obligation to participate in the actual operation of the business.There are restrictions on what the franchisee can sell.There are renewal, transfer, and dispute resolution issues.There are public figures.Financial performance representationThere are outlets and franchisee information.There are financial statements.The contracts are for 23 years.There are receipts
Step 10: Attach any added exhibits.
The section of "Exhibits" should be at the end of the table.List each exhibit separately with section numbers.The end of your Table of Contents may look like this.There are 23 contracts.There are Receipts Exhibits A.There is a list of Corporate Officers B.There are locations of existing franchise operations.
Step 11: The Table of Contents section has headings.
The main body of your FDD requires you to follow the section headings in the Table of Contents.If you want a potential buyer to make an informed decision about buying your franchise, you need to include these sections.
Step 12: Information about legal proceedings can be provided.
The purpose of the FDD is to let prospective buyers know about the franchise.You are not to use this as a marketing tool.Section 3 and 4 require you to be honest in reporting any litigation that the company has been involved in and any involvement of the parent company or any of its officers.The venue, case numbers, other parties involved, and descriptions of final decisions must be provided by you.
Step 13: Financial information should be reported.
The company's financial information is covered in sections 5, 6, 7, 10, and 21-23.You will need to gather financial information about the company in order to make financial statements.You will need to report the expectations of the franchisee, as well as the financial investment that will be expected in order to start up the franchise.Franchisors don't have to give franchisee information on sales, earnings, or expenses.
Step 14: Disclose the franchisee's operating obligations.
The FDD requires you to report the franchisee's obligations in running the franchise.These are things that are territory.The company has a trademark.There are patents and proprietary information.Product requirements are listed in Sec. 14.16)If obligations are guaranteed by a subsidiary or another entity, note them.
Step 15: All relevant contracts for the franchisee should be included.
The FDD should have copies of the legal agreements that the franchisee will need.The franchise offering, the franchise agreement, lease, options, and purchase agreements are included.You may need to include financing agreements, product supply agreements and any other contracts that are specific to these circumstances.
Step 16: A receipt is required for the FDD.
The acknowledgment of receipt of the disclosure document is included in the final section.You need to include two copies of this.The prospective franchisee can remove the signature page, sign to indicate receipt of the FDD, and give a copy to you in this section.This disclosure document summarizes certain provisions of the franchise agreement and other information in plain language.All agreements should be read carefully.Before you sign a binding agreement with or make a payment to the franchisor, you must be given a disclosure document.If the franchisor does not deliver this disclosure document on time or if it contains a false or misleading statement, a violation of federal law and state law may have occurred and should be reported to the Federal Trade Commission.The name, principal business address and telephone number of each franchise seller should be disclosed following the receipt statement.The issuance date should be stated.Provide a space for the franchisee's signature and date.
Step 17: The FTC requirements can be studied.
If you want to operate and sell franchise opportunities, you need to know the requirements of the FTC.The FTC regulates franchise sales in the US.You can find information on franchises on the FTC website.
Step 18: There are franchise rules in your state.
The governing requirement for most of the United States will be the FTC's franchise rule.In 1971, California became the first state to pass its own franchise statutes.If there are specific state laws that govern franchise offerings in your state, you should check with your Secretary of State or Attorney General.California, Connecticut, Hawaii, Indiana, Maryland, Minnesota, Nebraska, New York, North Dakota, Oregon, Rhode Island, South Dakota and Virginia have securities offices.
Step 19: The Uniform Franchise Disclosure Document can be reviewed.
The basis for a valid franchise disclosure document in most states is provided by the Uniform Franchise Disclosure Document.If you follow the example and explanations of the Uniform FDD, you should be able to comply with federal expectations.
Step 20: Prepare your FDD with the assistance of a franchise attorney or accountant.
The FDD is intended to be more than one document.They run from 100 to 200 pages and include a lot of information about your company.This isn't something to take lightly.The FDD should be finalized with your company's attorney and accountant.