A Franchise Disclosure Document (FDD) is the pre-sale disclosure that the FTC Franchise Rule requires franchisors to give prospective franchisees in the U.S. Its 23 Items cover the franchisor’s history, litigation, fees, initial investment and contract terms, along with financial performance figures when the franchisor chooses to provide them. This guide explains what each part contains and how the document is regulated.
Many franchisors require a significant initial investment. Before signing, prospective franchisees generally look at three things: what the franchise costs, what the franchisor requires of them, and what the franchisor commits to provide in return.
Federal law addresses these questions through the FTC Franchise Rule (16 CFR Part 436), which requires franchisors to give prospective franchisees a Franchise Disclosure Document (FDD). The FDD sets out the legal and financial terms of the franchise in a standard format, and it is a long and technical document.
What a Franchise Disclosure Document Is and Why It Matters
The FDD is not a contract. It is a disclosure document that sets out the obligations of both the franchisor and the franchisee. The binding contract is the franchise agreement, which is attached to the FDD.
Under the Federal Trade Commission’s Franchise Rule, all FDDs follow the same format: franchisors must provide 23 categories of information, referred to as “Items.” With these, franchisors disclose details about their business history, fees, investment requirements and contract terms, and, if they choose to make any, financial performance representations. They must also include the proposed franchise agreement and related contracts within the FDD.
Federal Disclosure Rules in U.S. Franchising
The FTC does not review, approve or register FDDs. Under the federal Franchise Rule, each franchisor is responsible for the accuracy of its own disclosure document, and the FTC enforces the Rule through investigations and court actions. Several states add their own franchise laws on top of the federal Rule.
Several states require the FDD to be registered or filed with a state regulator before a franchise can be offered or sold there, and in many of them a state examiner performs an agency review of the filing. A state registration is a review of the filing, not an endorsement of the franchise concept. A partly different set of states also regulates termination and non-renewal after the contract is signed.
When Franchisors Must Provide the FDD
Under the FTC Franchise Rule, the franchisor must furnish the FDD at least 14 calendar days before the prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate. This is a pre-sale disclosure period. It is not a cooling-off period, and it does not create a right to cancel after signing.
Good to know
The 14 calendar days are a disclosure deadline that applies before signing or paying. There is no federal cooling-off right for franchise purchases: once a franchise agreement is signed, its own terms and applicable state law govern any termination.
What Information Is Included in an FDD
Broadly speaking, the FDD contains three categories of information.
First, a franchisor identifies basic information about its business, such as its parent company, affiliates and executive leadership. The franchisor must also disclose material litigation (Item 3) and any bankruptcy filings during the previous 10 years (Item 4).
In the next section, the franchisor explains a franchisee’s obligations: everything from a comprehensive list of fees to operational details.
And finally, the franchisor must reveal other aspects of its business that affect a franchise’s operation.
Overview of the 23 Required FDD Disclosure Items
| Item No. | Item Description | What Each Includes |
|---|---|---|
| 1. | Franchisor and Parents, Predecessors and Affiliates | Identification of the franchisor’s parent company and affiliates, history and industry |
| 2. | Business Experience | A roster of company’s directors and executives |
| 3. | Litigation | A list of legal actions (e.g., lawsuits, criminal actions) involving the franchisor and its executives |
| 4. | Bankruptcy | A list of bankruptcy filings made by the franchisor, affiliates, or executives in the previous 10 years |
| 5. | Initial Fees | Identification of fees, or formulas for calculating them, owed to franchisor and payment terms |
| 6. | Other Fees | A list of other fees that a franchisee must pay the franchisor or an affiliate, such as royalties and advertising contributions |
| 7. | Estimated Initial Investment | A listing of all expenditures required for the franchisee’s initial investment, including fees, assets, inventory and other requirements |
| 8. | Restrictions on Sources of Products and Services | All requirements for the franchisee to purchase or lease goods or services from the franchisor, affiliates or suppliers |
| 9. | Franchisee’s Obligations | A complete inventory of the franchisee’s responsibilities |
| 10. | Financing | Disclosure of financing arrangements by the franchisor, an agent or affiliates |
| 11. | Franchisor’s Assistance, Advertising, Computer Systems and Training | Identification of franchisees’ financial contribution to advertising; franchisees’ and franchisors’ obligations relating to training, onsite assistance and use of computer systems |
| 12. | Territory | Identification of the franchisee’s territory or location |
| 13. | Trademarks | Disclosure of all trademarks and the status of legal issues impacting their use |
| 14. | Patents, Copyrights and Proprietary Information | Disclosure of all patents and copyrights and along with any litigation or other actions limiting their use |
| 15. | Obligation to Participate in the Actual Operation of the Franchise Business | Requirements for the franchisee to engage in the franchise’s operation |
| 16. | Restrictions on What the Franchisee May Sell | Disclosure of additional requirements relating to the franchisee’s sale of goods and services |
| 17. | Renewal, Termination, Transfer and Dispute Resolution | The basis for renewal, transfer and termination of franchises and processes for resolving any disputes |
| 18. | Public Figures | Identification of any celebrity with a role in the franchise |
| 19. | Financial Performance Representations | Optional. Historical or forecast sales, income or profit figures, if the franchisor chooses to provide them; otherwise, a required statement that the franchisor makes no financial performance representations |
| 20. | Outlets and Franchisee Information | Information relating to franchise growth and turnover with list of current and previous franchisees |
| 21. | Financial Statements | The franchisor’s audited annual financial statements |
| 22. | Contracts | The franchise agreement, lease agreements and all other related contracts |
| 23. | Receipts | Signed acknowledgement by the prospective franchisee confirming their receipt of the required information |
Costs, Fees and Financial Expectations
Franchisors must disclose the initial franchise fee in Item 5, recurring fees such as royalties and advertising contributions in Item 6, and the estimated initial investment in Item 7, including amounts paid to the franchisor, an affiliate or a designated supplier. Fees cannot be hidden in agreements or in an operations manual. Typical royalty structures and Item 7 ranges by brand are detailed in our guide on how much a franchise costs.
Franchisors may adopt a fee schedule based on sales or other factors, but if there is no set amount, the franchisor must explain the formula used to determine any fees.
Items 5 to 7 do not include a salary for the franchisee, and Item 7 covers the initial phase only. Later reinvestment obligations, such as remodels or equipment upgrades, are described elsewhere in the FDD and in the franchise agreement.
Item 19 is optional. A franchisor that makes any financial performance representation must place it in Item 19 and have a reasonable basis and written substantiation for it. Outside Item 19, the franchisor cannot make oral or written earnings claims to prospective franchisees, with narrow exceptions such as the actual records of an existing outlet offered for sale.
What Is Item 19? Financial Performance Representations Defined
Under 16 CFR 436.1(e), a financial performance representation is any oral, written or visual representation to a prospective franchisee, including in the general media, that states, expressly or by implication, a specific level or range of actual or potential sales, income or profits. Charts, tables and calculations that show possible results based on a combination of variables are covered too.
When a franchisor makes such a representation, Item 19 states whether it describes the historic performance of existing outlets, or a subset of them, or a forecast. For historic figures, it discloses the period covered, how many outlets the data includes, how many reached or exceeded the stated results, and any characteristics of those outlets that may differ from the one being offered. Item 19 also carries a statement that a new franchisee’s results may differ, and that written substantiation is available on reasonable request.
Is Item 19 mandatory in an FDD?
No. Under the FTC Franchise Rule, Item 19 is optional. A franchisor that provides no financial performance information must state in Item 19 that it does not make any representations about a franchisee’s future financial performance. The FTC’s consumer guide puts it plainly: the Rule does not require a franchisor to provide sales or earnings information, but many do.
In October 2026, the franchisor of Premier Martial Arts and its former franchise sales organization settled FTC charges for a total of $1.85 million. The FTC alleged that earnings figures in the franchisor’s 2020 to 2022 FDDs lacked a reasonable basis to be representative, as the existing studios were larger and their operators more experienced than most new franchisees, and that financial performance representations were made outside the FDD.
Franchise Disclosure Document Requirements and Updates
Franchisors must revise the FDD at least once a year. When a material change occurs, they must also prepare revisions within a reasonable time after the close of the fiscal quarter.
The information must be accurate and clear: written in plain English rather than business jargon.
On the more technical side, franchisors must prepare an FDD as a single document. It must begin with a cover sheet and general information. It may also include information relating to state-specific laws.
How an FDD Is Prepared and Maintained
While the North American Securities Administrators Association (NASAA) and other associations provide guidelines on FDD preparation, franchisors typically hire attorneys who specialize in franchise law to prepare the FDD and its related agreements.
Item 21 requires financial statements prepared under U.S. GAAP and audited by an independent certified public accountant. The Rule allows start-up franchisors to phase in audits over their first fiscal years of franchising, so a recent system’s FDD can contain unaudited figures. Franchisors often have sales and operational staff contribute information as well.
Annual Compliance and Revisions
All franchisors must update their FDDs within 120 days after the end of their fiscal year.
States may include additional requirements for FDD updates. For example, the New York Attorney General’s franchise registration guide requires renewal and amendment filings to include redlined pages comparing the new FDD with the one most recently registered in the state.
Which FDD Items Prospective Franchisees Read First
Industry resources commonly point to a handful of Items as the first ones prospective franchisees read: Items 5, 6 and 7 for fees and the initial investment, Item 9 for franchisee obligations, Item 19 for financial performance when the franchisor provides it, and Item 20 for outlet data.
Item 20 lists the names and contact information of current franchisees, and of franchisees who left the system during the last fiscal year, which makes it the section prospective buyers commonly use to contact existing operators.
What Items 3, 4, 12, 17 and 20 Disclose
The Rule requires every fee to appear in Items 5 to 7, with the formula explained for any fee that is not a fixed amount. Comparing those Items with the fees in the franchise agreement and the operations manual is one of the checks industry resources commonly describe.
Item 3 discloses material litigation involving the franchisor, its predecessors and certain officers, including actions brought by or against franchisees. Item 4 discloses bankruptcy filings during the previous 10 years.
Item 12 states whether the territory granted is exclusive and whether the franchisor reserves the right to sell through other channels. Item 17 summarizes the conditions for renewal, termination, transfer and dispute resolution in a standardized table, with references to the corresponding sections of the franchise agreement.
Item 20 reports, for the last three fiscal years, the number of outlets opened, transferred, terminated, not renewed, reacquired by the franchisor or otherwise closed, along with projected openings for the coming year.
What the FTC Says About Professional Review
In its publication A Consumer’s Guide to Buying a Franchise (September 2020), the Federal Trade Commission suggests that prospective franchisees consider talking to an accountant and a lawyer about an FDD and franchise agreement. The role and typical fees of a franchise lawyer are covered in a separate guide.
Where to Find Franchise Disclosure Documents
Copies of FDDs come from three main types of sources: state regulators in states that require registration or filing, the franchisor itself during the sales process, and private libraries, some of which are operated by franchise brokers or franchise development firms.
Private FDD libraries vary in coverage, update frequency and price, from free access for registered users to paid subscriptions.
State Registration Databases and Public Sources
Some registration states make filed FDDs available online. The Wisconsin Department of Financial Institutions offers a public Franchise Search, and the California and Minnesota regulators also maintain online filing records. Several states receive franchise filings through FRED, the electronic filing depository operated by NASAA.
Requesting the Document from a Franchisor
A franchisor may furnish the FDD by any method, on paper or electronically, and must first tell the prospective franchisee which formats are available and any conditions for reviewing them. Whatever the format, the prospective franchisee signs a receipt acknowledging delivery.
That signed receipt is part of the FDD itself: it forms Item 23, the last of the 23 Items.
The Bottom Line
The FDD is the disclosure document that the FTC Franchise Rule requires franchisors to furnish at least 14 calendar days before a binding agreement is signed or any money is paid. Its 23 Items cover the franchisor’s history, litigation, fees, initial investment, territory, contract terms, outlet data and audited financial statements. Item 19 is optional, and the FTC does not review or approve the document. Several states add registration or filing requirements of their own, which is why the same brand’s FDD can carry state-specific addenda.
Frequently Asked Questions About the FDD
No. The FDD is a disclosure document, not a contract. The binding contract is the franchise agreement, which is attached to the FDD and becomes binding once both parties sign it.
No. Financial performance representations are optional under the FTC Franchise Rule. A franchisor that makes none must say so in Item 19, and a franchisor that makes one must have a reasonable basis and written substantiation for it.
No. The FTC does not review, approve or register FDDs; it enforces the Franchise Rule. Several states require registration or filing with a state regulator, and a state registration is a review of the filing, not an endorsement of the franchise.
At least once a year, within 120 days after the close of the franchisor’s fiscal year. When a material change occurs, the franchisor must also revise the FDD within a reasonable time after the close of the fiscal quarter.
This content is provided for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations vary by state and individual circumstances and may change over time. Readers should consult a qualified attorney, tax professional, or other licensed professional regarding their specific situation. Nothing herein creates an attorney-client relationship.
