The Franchise Disclosure Document (FDD) or Uniform Franchise Offering Circular (UFOC)
is a standard document discloses extensive information about the franchiser and
the franchise organization with intention to provide the all the material facts
information to the franchisee to make understand and educate them to take decisions
before going to investments. The information is divided into 3 sections. Section
one contains a cover page, section 2 contains table of contents and section 3 contains
23 “Categories” or called “Items”
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About the Franchiser including past and present associates and affiliates.
This is one the first information tells about the franchiser such as how long they
have been, what do they do, what are their rules and regulation and also they will
about industry competitions, requirements to run the business. The Franchisee gets
an idea about the basic requirements, risk of the business, financial implications
and other related information
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Bio Data of Key Persons in the Company or Promoters.
This part reveals who are the key persons Bio Data and their management skills,
past achievements and also their vision on the business.
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Litigation / Claims History
This part reveals the past litigation history of the franchiser, all directors and
executive officers such as convictions, felony, fraud, violation of franchise laws,
judgments, misconducts, unfair practice, settled civil actions, claims history,
and law suits with existing franchisees, any breach of contracts with franchisees
etc.
With this the prospective franchisees understood the about the value and nature
of the company and also under stood the possibility of risk to do business with
them.
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Bankruptcy/ Insolvency.
This tells whether the franchiser or any of its executives have been involved in
a recent bankruptcy / Insolvency information, and filled bankruptcy / Insolvency
circumstances, that can helps the potential franchisee to assess the franchiser’s
financial stability and also the capability of delivering the support services.
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The Franchise Fees or Front End Fees.
This sections tells all of the costs involved from starting and operating of a franchise
business, such as Application fee, Initial set fees, including any Nor- Refundable
deposits or, and any costs for initial inventory, signs, equipment, leases, or rentals.
This gives an overall idea about the immediate and ongoing expenses costs.
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Other Fees and Expenses.
This section of the part covers the expenses of Training, Assistance, Royalties,
Advertisements, Up-gradations, Insurance and Any other fees obligated to pay to
the franchiser.
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Initial Investment of Franchisee.
This is an estimated investment amount need to contribute by the franchisee towards
the working capital, equipment, inventory, supplies, real estate, and other associated
costs to start of the business.
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Restrictions on Products and Services.
This section tells source of following things
- Suppliers from whom a franchisee is purchasing the goods
- Franchisee offerings of sales of goods, products and services
- Franchisee’s customers List
- Locations for the franchisee where they can sell goods or services
- Use of the Internet by franchisee to sell goods or services to the customers in
and out of their territory and the right of the franchiser and other franchisees
to use the Internet to solicit customers or to sell in their territory
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Obligations of the Franchisee.
This section tells the duties and obligations of the Franchisee in detail about
the purchases from the franchiser approved suppliers, and other associated information
of promotions, discounts etc about the suppliers.
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Financing Arrangements.
This section tells about the direct franchiser financial assistance and list of
other franchise approved third parties
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Obligations of the Franchiser.
This section tells about the Franchiser contributions and responsibility on the
business such as providing the training to the franchisee and employee, advertisement
of the business, technical assistance, selection of site, and market selections,
etc
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Territory.
This sections tells about the area of operations or the territory of operations,
and future expansions, exclusiveness etc
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Trademarks.
This section tells about the Trade Marks, Trade Names, and Logos, etc which was
registered with respected authority or departments.
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Patents, Copyrights, and Proprietary Information
This section tells about the copy rights, and patents and intellectual properties
of the franchiser
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Obligations of the Franchisee or participant:
This section tells about the roles, participation and responsibility of the franchisee
to run the franchise business. This can also tell the limitations and restrictions
of the franchisee.
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Restrictions on Goods and Services Offered by the Franchisee.
This section tells about the type of goods to sell or offer or serve and such a
limitation will be decided by the franchiser and its obligations of the franchisee
to follow those permitted services only.
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Renewal, Termination, Repurchase, Modification and/or Transfer of the Franchise
Agreement, and Dispute Resolution.
This is sections tells in details of the terms, conditions, rules, regulations,
options, reviews, rights, of renewals, sell, assign, terminations, continuations
and transfers of the owner ship of the business etc and also possible mediation's
and resolving methods in the events of dispute between the franchiser and franchisee.
And this section tells about the franchisee’s obligations to the franchiser after
termination.
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Public Figures
This part tells any compensations need to pay the third parties whom are rendering
the services to promote the business or any management consultations etc
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Financial Performance Representations.
The franchisers are not obligated to show the financial performance information
however with best interest of the all, to prevent franchise fraud and also due to
possible needs to meet the conditions of the particular states the will provide
the financial performance summary to the franchisee which may show estimated earnings,
estimated sales, claims and source of data etc.
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List of Franchise Outlets other related information’s
This section tells about the list of all franchises ever sold, currently in operation,
company-owned units, and terminated franchises during the previous three years
Many franchisees in one geographical area will create more competition for customers.
The number of terminated, canceled, or non-renewed franchises may indicate problems.
In few occasions the companies may repurchase failed outlets and list them as company-owned
outlets.
If a franchisee buys an existing outlet that was reacquired by the franchiser, the
franchiser must tell the franchisee who owned and operated the outlet for the last
five years. Several owners in a short time may indicate that the location isn’t
profitable or that the franchiser hasn’t supported that outlet as promised
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Financial Statements:
This section tells current year profit and lost statements, Balance sheet, and last
3 years Audited financial information. This tells in what directions the franchiser
is running the business such growth of the franchiser and possibility to support
and also the potential risk to the investor to join as franchisee.
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Contracts:
This is a Franchise Agreement, between the franchiser and franchisee. By signing
this contract both parties are legally bind to perform the situated objects for
the mutual benefit.
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Acknowledgment of Receipt.
This nothing but an acknowledgment the prospective investor who is now known as
franchisee has received the UFOC/ FDD. The franchisee has not obligated to sign
on any agreements.
