Franchise Disclosure Document Template

Franchise Disclosure Document (FDD) Sample – MacDonalds, Subway, Dunkin Donuts

What is the Franchise Disclosure Document? What information is found in the FDD?

Franchising a business is a great way of stimulating growth and expansion. By buying into the business, the franchisor sets the terms and conditions of the business enterprise by way of the franchise disclosure document.

what is a franchise disclosure document (FDD) and why is it important? This document is made available to the prospective franchisee during pre-ownership discussions. The franchise disclosure document requirements are made available to the prospective franchisee 14 days before any signing of agreements or contracts.

This time is given to enable the prospective franchisee to study the document while seeking legal help or interpretation of the details. If the terms set forth within the franchise disclosure document are deemed fair enough, then the prospective franchisee can approach the franchisor for acceptance and contract signing.

The contents within the franchise disclosure document are normally written in a prescribed order or format. This is to write to enable the prospective franchisee to easily make informed investment decisions as it contains the entire terms of agreements for owning the franchise. There are normally 23 sections within the franchise disclosure document. These include the following;

  1. The Franchisor and Any Parents, Predecessors, and Affiliates

Just like an introduction, this section contains a comprehensive description of the company, the competition as well as licensing issues as well as permits that may be needed by the franchisee, in addition to how the company came into existence which is its history.

  1. Identity and Business Experience of Key Persons

Under this section, it captures the experience as well as relevant professional qualifications of the executives or officers of the franchisors.

  1. Litigation

This is historical as it provides any information on prior litigation cases against any of its officers as well as possible felony charges that may have resulted in the past. This information enables the prospective franchisee to make his/her judgment about the franchisor.

  1. Bankruptcy

This provides the prospective franchisee information to enable him/her to make a fair assessment of the franchisor’s financial stability by disclosing any recent bankruptcy issues if any.

  1. Initial Fees

The cost implications of owning this franchise are disclosed under this section. Other related costs such as the advert fees as well as royalties are made available here. All non-refundable fees are also clearly stated here.

  1. Other Fees

Here, all other fees either recurring or otherwise which may be incurred by the prospective franchisee in the course of ownership of the franchise are provided.

  1. Estimated Initial Investment

This is an estimate of expenditure to be incurred by the franchisee to own a part of this franchise.

  1. Restrictions on Sources of Products and Services

To guard its interests, a franchisor may decide to restrict its franchisees from getting their products supplied from certain sources. All the details regarding this are provided under this section.

  1. Obligations of the Franchisee

The franchisee is expected to abide by certain obligations which are provided by the franchisor. This section captures the entire franchisee obligation.

  1. The Financing Arrangements

This section discloses if there are any financing arrangements made available by the franchisor, and if there are, describes the terms and conditions to qualify for this financing.

  1. The Obligations of the Franchisor (Franchisor’s Assistance, Advertising, Computer Systems, and Training)

Here, it captures the obligations on the part of the franchisor. It lists all the services the franchisor is to provide to the franchisee.

  1. Territory

Territory rights are disclosed under this section. Exclusive territory matters are revealed as well as possible future changes that may result.

  1. Trademarks

The franchisor’s trademarks as well as its trade names are disclosed as well as the conditions attached to the use of its trademarks.

  1. Patents, Copyrights and Proprietary Information

Copyrights and patent usage are discussed, with information on how they should be used adequately provided.

  1. Obligation to Participate in the Actual Operation of the Franchise Business

The obligation the franchisee is expected to abide by in the actual operation of the franchise business is provided under this section. These obligations are a requirement set forth by the franchisor.

  1. Restrictions on What the Franchisee May Sell

There are restrictions on what the franchisee may or may not sell to its clients or customers. This section highlights these restrictions.

  1. Renewal, Termination, Transfer, and Dispute Resolution

The tenure of the franchise agreement is stated here. Also, information is given on what constitutes the right of the franchisee if there is a disagreement or dispute between the franchisee and franchisor.

  1. Public Figures

In the event where the franchisor uses notable personalities, the percentage or amount such a person is paid is disclosed.

  1. Financial Performance Representations

Although not a requirement, the franchisor under this section is expected to support their claims on earnings if they so wish to provide such information.

  1. Outlets and Franchisee Information

Under this section in the franchise disclosure document, information is provided on the locations as well as outlets owned by the franchisor.

  1. Financial Statements

The financial status of the franchisor is provided under this section of the franchise disclosure document. Also, the audited financial statements for the last 3 years are attached here. This guides the franchisee in making informed investment decisions, thus protecting him/her from bankruptcy related problems which may result.

  1. Contracts

Under the contracts section, all information regarding the agreements to be entered into between the franchisee and franchisor is made available.

  1. Receipts

The acknowledgment of the receipt of the franchise disclosure document is made. This is through the signing of a receipt.

Every franchise disclosure document is expected to have these contents as they define the terms of agreement for ownership of the franchise opportunity. If these conditions are acceptable to the prospective franchisee, he/she may choose to sign the franchise contract, thus marking the commencement of business.

 

SAMPLE GUIDE

The franchise disclosure document is an important document that guides the relationship between the franchisee and the franchisor. Also, before the signing of the franchise agreement/contract, the document is made available to the prospective franchisee to study and understand the terms and conditions of the contract. This article provides a franchise disclosure document sample, with details contained therein to act as a guide for interested franchisees.

Table of Contents

  • The Franchisor and Parents, Predecessors and Affiliates
  • Business Experience
  • Litigation
  • Bankruptcy
  • Initial Fees
  • Other Fees
  • Estimated Initial Investment
  • Restrictions on Sources of Products and Services
  • Franchisees Obligations
  • Financing
  • Franchisor’s Assistance, Advertising, Computer Systems, and Training
  • Territory
  • Trademarks
  • Patents, Copyrights and Proprietary Information
  • Obligation to Participate in the Actual Operation of the Franchise Business
  • Restriction on What the Franchisee May Sell
  • Renewal, Termination, Transfer and Dispute Resolution
  • Public Figures
  • Financial Performance Representations
  • Outlets and Franchisee Information
  • Financial Statements
  • Contracts
  • Receipts

The Franchisor and Any Parents, Predecessors, and Affiliates
Southern Kitchens Inc is referred to in this franchise disclosure document as “Southern Kitchens,” “You” refers to the person or entity buying the franchise from Southern Kitchen which is a restaurant located in Louisiana was founded in 2001under its current name. Southern Kitchens has since expanded its operations into franchising which commenced in 2009. Southern Kitchen currently has no affiliates in any business line.

Since the inception of Southern Kitchens by Mr. John Price, the company has never transferred ownership or sold its shares to any individual or group. Thus, It has remained under the sole ownership of the owner.

Business Experience

  • Board Chairman: John Price

Before becoming the chairman has held the position of Chief Executive Officer which he held from 2001 to 2005 since the inception of the company. He has a vast experience in catering and has worked with notable restaurant brands such as McDonald’s and KFC.

  • Chief Executive Officer: Graham Wise

Holding this position from 2005 to date, he has been Southern Kitchen’s director of operations and holds a Bachelors’s degree in business administration, as well as being well experienced in operational management and doubles as a business consultant.

  • Chief Financial Officer: Ted Newton

As Southern Kitchen’s financial officer from 2010, He is a chartered accountant and has worked as an accountant with several financial institutions such as Barclays and Citibank.
Litigation
Currently, there is no litigation for disclosure in the franchise disclosure document.
Bankruptcy
Bankruptcy filings and proceedings are not required for disclosure in this document.
Initial Fees
To own this franchise you must pay an initial franchise fee of $50,000 for a limited-service franchise, while a fee of $60,000 applies to the traditional franchise.
Other Fees

NAME OF FEE AMOUNT DATE OF PAYMENT
Audit Fees $13,000 First Friday of every month
Advertising Fees 0.9% of gross earnings Quarterly
Relocation Fees $12,000 After approval
Promotion and Marketing 2% of gross earnings Quarterly
Service charge $200 Monthly

 
Estimated Initial Investment

Expense Estimate Payment Method Due Date
Furniture equipment and fixtures $190,000 to $300,000 As Incurred As incurred
Engineering and Architectural Fees $6,000 to $15,000 As incurred Before commencement
Travel, Wage, and Living Expenses (during training) $3,000 to $ 15,000 As incurred Training periods

Restrictions on Sources of Products and Services
All food items must be purchased from Southern Kitchen. Only Southern Kitchen’s proprietary products such as seasoning, drinks, as well as spices must be used. You must also adhere to Southern Kitchen’s hygiene and quality standards at all times.
Franchisee’s Obligations

Obligation Article Item
Training (Initial and Ongoing) Article 3 of the franchise agreement Item 8
Site Selection and Purchase Article 9 and 6 Item 7
Fees Article 12 and 13 Item 4
Proprietary information and trademark Article 7, 8 and 10 Item 5

Financing
Currently, Southern Kitchen offers no direct or indirect financing for its franchisees.

Franchisor’s Assistance, Advertising, Computer Systems, and Training
Southern Kitchen will provide training for both traditional franchisees as well as limited service franchisees that will cover delivery, financial management, kitchen preparation, orientation, and kitchen supervision. Other areas of training will include dishwashing, hostess, server, and opening and closing manager duties which will round off with a final test and evaluation session.

A list of approved equipment and product suppliers will be provided by Southern Kitchen to all its franchisees. These are tailored to meet certain specifications.

Territory
As a Southern Kitchen franchisee, you are entitled to an exclusive territory covering a one(1) mile radius. However, you cannot relocate from your exclusive territory without express permission from Southern Kitchen.

Trademarks
As a Southern Kitchen franchisee, you are entitled to use or operate under the name “Southern Kitchen” The use of this trademark may only be used according to the specification given by Southern Kitchen.

Patents, Copyrights and Proprietary Information
All Southern Kitchen’s operating manual must be kept confidential as failure to do so will result in appropriate sanctions. The manual must not be duplicated, reproduced, or copied.

Obligation to Participate in the Actual Operation of the Franchise Business
You are under no obligation to operate your Southern Kitchen restaurants. However, you are required to appoint a manager to operate your restaurants. This manager must have completed the stipulated Southern Kitchen training. The training program is a requirement for non-operating owners as well as operating owners.

Restrictions on What the Franchisee May Sell
Only products and services which pass Southern Kitchen’s approval test are to be sold. Southern Kitchen also has the right to set the prices of these approved products.

Renewal, Termination, Transfer and Dispute Resolution
The holding tenure for a Southern Kitchen franchise is 10 years for both types of franchises (that is, the traditional franchise and the limited franchise. Southern Kitchen allows you to renew your contract which has the tenure of 5 years. You may terminate the franchise agreement if Southern Kitchen fails to fulfill any of its obligations to you.

Transfer of your Southern Kitchen franchise is only possible when Southern Kitchen approves the transfer of such.

Public Figures
Southern Kitchen does not use notable figures to promote its franchise. The same also applies to the management of the franchise.

Financial Performance Representations
Southern Kitchen will not make representations of the financial performance of a franchisee.

Outlets and Franchisee Information

Type of Outlet Beginning of Year End of Year
Franchised Outlet 30 31
Company Owned 0 0
Total 30 31

 Financial Statements
Find attached Southern Kitchen’s 3-year audited financial statements.

Contracts
Attached as exhibit a is the franchise agreement, and franchise questionnaire

Receipt
Also, Find attached a detachable acknowledgment of receipt document.

This franchise disclosure document sample is highly summarized and made available to act as a guide to help you have a better understanding of what the contents of a franchise disclosure document look like.

With the information made available here, you will have a fore-knowledge of the procedure involved in signing a franchise disclosure document.

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