{"id":1562689,"date":"2026-02-24T11:36:13","date_gmt":"2026-02-24T10:36:13","guid":{"rendered":"https:\/\/lexpress-franchise.com\/en-us\/articles\/what-is-a-franchise-disclosure-document\/"},"modified":"2026-02-23T10:16:50","modified_gmt":"2026-02-23T08:16:50","slug":"what-is-a-franchise-disclosure-document","status":"publish","type":"post","link":"https:\/\/lexpress-franchise.com\/en-us\/articles\/what-is-a-franchise-disclosure-document\/","title":{"rendered":"What Is a Franchise Disclosure Document (FDD)?"},"content":{"rendered":"\n

With a franchise, budding entrepreneurs can jump into business ownership by using a larger company\u2019s proven model, thereby skipping the challenges of a brand launch and uncertain operational demands.<\/strong><\/p>\n\n\n\n

\n\n\n\n

On the other hand, given the investments that many franchisors require, how do you know which franchises are true moneymakers? What are the requirements for owning the franchise? And how do you know if a franchisor will fulfill their promises? <\/p>\n\n\n\n

To help separate the franchise wheat from the chaff, U.S. law requires franchisors to provide potential franchisees with a \u201cFranchise Disclosure Document\u201d (FDD). Within this due diligence tool, franchisors reveal the legal and financial realities of their franchise. But FDDs are complex documents, so it\u2019s essential to understand the information they provide.  <\/p>\n\n\n\n

What a Franchise Disclosure Document Is and Why It Matters<\/h2>\n\n\n\n

The FDD<\/strong> is not a contract. Instead, it is a legal<\/strong> document<\/strong> that identifies the obligations<\/strong> for both parties. <\/p>\n\n\n\n

According to the Federal Trade Commission\u2019s \u201cFranchise Rule,\u201d all FDDs must follow the same format: Franchisors<\/strong> must provide 23 categories of information, referred to as \u201cItems<\/strong>.\u201d With these, franchisors must share details about their business<\/strong> history<\/strong>, financial performance<\/strong> and other requirements. They must also include the proposed franchise agreement<\/a> and related contracts within the FDD<\/strong>. <\/p>\n\n\n\n

Federal Disclosure Rules in U.S. Franchising<\/h3>\n\n\n\n

Under the federal Franchise Rule<\/strong>, a franchisor self-certifies its FDD\u2019s accuracy. Given that, there\u2019s a patchwork of state<\/strong> laws<\/strong> to protect franchisees. <\/p>\n\n\n\n

For example, some states mandate that franchisors<\/strong> submit FDDs for agency review<\/a>.  <\/p>\n\n\n\n

When Franchisors Must Provide the FDD 
<\/h3>\n\n\n\n

Once you\u2019ve submitted an application and the franchisor<\/strong> has agreed to consider you as a franchisee<\/strong>, the franchisor must give it to you at least 14 calendar days<\/strong><\/em> before they can ask you to sign a franchise<\/strong> agreement<\/strong> or accept any money<\/strong> from you. <\/p>\n\n\n\n

What Information Is Included in an FDD<\/h2>\n\n\n\n

Broadly speaking, the FDD<\/strong> contains three categories of information<\/strong>. <\/p>\n\n\n\n

First, a franchisor identifies basic information about their business<\/strong>, such as their parent company<\/strong>, affiliates and executive<\/strong> leadership<\/strong>. The franchisor should also disclose recent litigation<\/strong> or bankruptcies<\/strong>. <\/p>\n\n\n\n

In the next section, the franchisor<\/strong> explains a franchisee\u2019s obligations<\/strong> \u2013 everything from a comprehensive<\/strong> list<\/strong> of fees to operational<\/strong> details<\/strong>. <\/p>\n\n\n\n

And finally, the franchisor<\/strong> must reveal other aspects of their business<\/strong> that affect a franchise\u2019s operation<\/strong>.  <\/p>\n\n\n\n

Overview of the 23 Required FDD Disclosure Items <\/h3>\n\n\n\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t
Item No.<\/th>Item Description<\/th>What Each Includes<\/th>\n<\/tr>\n<\/thead>\n
1.<\/td>Franchisor and Parents, Predecessors and Affiliates<\/td>Identification of the franchisor\u2019s parent company and affiliates, history and industry<\/td>\n<\/tr>\n
2.<\/td>Business Experience<\/td>A roster of company\u2019s directors and executives<\/td>\n<\/tr>\n
3.<\/td>Litigation<\/td>A list of legal actions (e.g., lawsuits, criminal actions) involving the franchisor and its executives<\/td>\n<\/tr>\n
4.<\/td>Bankruptcy<\/td>A list of bankruptcy filings made by the franchisor, affiliates, or executives in the previous 10 years<\/td>\n<\/tr>\n
5.<\/td>Initial Fees<\/td>Identification of fees, or formulas for calculating them, owed to franchisor and payment terms<\/td>\n<\/tr>\n
6.<\/td>Other Fees<\/td>A list of other fees that a franchisee must pay the franchiser or affiliate<\/td>\n<\/tr>\n
7.<\/td>Estimated Initial Investment<\/td>A listing of all expenditures required for the franchisee\u2019s initial investment, including fees, assets, inventory and other requirements<\/td>\n<\/tr>\n
8.<\/td>Restrictions on Sources of Productions and Services<\/td>All requirements for the franchisee to purchase or lease goods or services from the franchisor, affiliates or suppliers<\/td>\n<\/tr>\n
9.<\/td>Franchisee\u2019s Obligations<\/td>A complete inventory of the franchisee\u2019s responsibilities<\/td>\n<\/tr>\n
10.<\/td>Financing<\/td>Disclosure of financing arrangements by the franchisor, an agent or affiliates<\/td>\n<\/tr>\n
11.<\/td>Franchisor\u2019s Assistance, Advertising, Computer Systems and Training<\/td>Identification of franchisees\u2019 financial contribution to advertising; franchisees\u2019 and franchisors\u2019 obligations relating to training, onsite assistance and use of computer systems<\/td>\n<\/tr>\n
12.<\/td>Territory<\/td>Identification of the franchisee\u2019s territory or location<\/td>\n<\/tr>\n
13.<\/td>Trademarks<\/td>Disclosure of all trademarks and the status of legal issues impacting their use<\/td>\n<\/tr>\n
14.<\/td>Patents, Copyrights and Proprietary Information<\/td>Disclosure of all patents and copyrights and along with any litigation or other actions limiting their use<\/td>\n<\/tr>\n
15.<\/td>Obligation to Participate in the Actual Operation of the Licensed Business<\/td>Requirements for the franchisee to engage in the franchise\u2019s operation<\/td>\n<\/tr>\n
16.<\/td>Restrictions on What the Franchisee May Sell<\/td>Disclosure of additional requirements relating to the franchisee\u2019s sale of goods and services<\/td>\n<\/tr>\n
17.<\/td>Renewal, Termination, Transfer and Dispute Resolution<\/td>The basis for renewal, transfer and termination of franchises and processes for resolving any disputes<\/td>\n<\/tr>\n
18.<\/td>Public Figures<\/td>Identification of any celebrity with a role in the franchise<\/td>\n<\/tr>\n
19.<\/td>Financial Performance Representations<\/td>All financial performance information including sales, income and profits<\/td>\n<\/tr>\n
20.<\/td>Outlets and Franchisee Information<\/td>Information relating to franchise growth and turnover with list of current and previous franchisees<\/td>\n<\/tr>\n
21.<\/td>Financial Statements<\/td>The franchisor\u2019s audited annual financial statements<\/td>\n<\/tr>\n
22.<\/td>Contracts<\/td>The franchise agreement, lease agreements and all other related contracts<\/td>\n<\/tr>\n
23.<\/td>Receipts<\/td>Signed acknowledgement by the prospective franchisee confirming their receipt of the required information<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n

Costs, Fees and Financial Expectations<\/h3>\n\n\n\n

Franchisors<\/strong> should use Items 5-7 to disclose all fees<\/strong> that a franchisee must pay, as well as the required<\/strong> initial investment<\/strong> paid to the franchisor, an affiliate or a designated supplier. Fees cannot be hidden in agreements<\/strong> or within an operational<\/strong> manual<\/strong>.<\/p>\n\n\n\n

Franchisors may adopt a fee<\/strong> schedule based on sales or other factors, but if there is no<\/strong> set<\/strong> amount<\/strong>, the franchisor<\/strong> must explain the formula<\/strong> used to determine any fees<\/strong>.<\/p>\n\n\n\n

Even when the information<\/strong> is detailed, there are other concerns to address. For example, the Items may not include any franchisee<\/strong> salary<\/strong> or cover subsequent investments<\/strong> that you must make after the franchise has opened.  <\/p>\n\n\n\n

When it comes to financial<\/strong> performance<\/strong>, a franchisor must include all relevant information in Item 19. They cannot make verbal or written claims not included in that section<\/strong>. <\/p>\n\n\n\n

Franchise Disclosure Document Requirements and Updates<\/h2>\n\n\n\n

Companies<\/strong> must update<\/strong> the FDD at least once a year<\/strong>, but some update FDDs every<\/strong> quarter<\/strong>. <\/p>\n\n\n\n

The information<\/strong> must be accurate and clear<\/strong> \u2013 written in plain<\/strong> English<\/strong> rather than business<\/strong> jargon<\/strong>. <\/p>\n\n\n\n

On the more technical<\/strong> side<\/strong>, franchisors must prepare an FDD<\/strong> as a single<\/strong> document<\/strong>. It must begin with a cover<\/strong> sheet<\/strong> and general<\/strong> information<\/strong>. It may also include information relating to state-specific laws<\/strong>. <\/p>\n\n\n\n

How an FDD Is Prepared and Maintained<\/h3>\n\n\n\n

While the North American Securities Administrators Association (NASAA) and other associations<\/strong> provide guidelines<\/strong> on FDD<\/strong> preparation<\/strong>, franchisors typically hire attorneys<\/strong> who specialize in franchise<\/strong> law<\/strong> to prepare the FDD<\/strong> and its related agreements<\/strong>.\u00a0<\/p>\n\n\n\n

Franchisors<\/strong> must have accountants<\/strong> prepare audited financial<\/strong> statements<\/strong>, and they often have sales and operational staff contribute information<\/strong> as well.  <\/p>\n\n\n\n

Annual Compliance and Revisions<\/h3>\n\n\n\n

All franchisors<\/strong> must update FDDs<\/strong> within 120<\/strong> days<\/strong> after the end of their fiscal<\/strong> year<\/strong>.<\/p>\n\n\n\n

States<\/strong> may include additional<\/strong> requirements<\/strong> for FDD updates. For example, in New<\/strong> York<\/strong>, franchisors must submit a redlined<\/strong> copy<\/strong>, so you can see changes<\/strong> from the previous year. <\/p>\n\n\n\n

How to Review and Analyze an FDD Before Investing<\/h2>\n\n\n\n

While it\u2019s important for you to review the entire FDD<\/strong>, industry experts often recommend beginning with a few key areas<\/strong> \u2013 such as the fees<\/strong> and initial investment<\/strong> to determine what revenue you\u2019d need to generate a profit<\/strong>. <\/p>\n\n\n\n

It\u2019s also vital to study the franchisee<\/strong> obligations<\/strong>. <\/p>\n\n\n\n

The franchisee<\/strong> list<\/strong> is also useful, as past and present franchisees can be an invaluable source of information<\/strong>.  <\/p>\n\n\n\n

Some Red Flags to Look For<\/h3>\n\n\n\n

Experts warn that potential franchisees should look out for common red flags<\/strong> such as exorbitant franchise fees<\/strong>, confusing fee structures or formulas. Another cause for concern: if there are differences<\/strong> between the fees identified in Items 5-7 and those in operations<\/strong> manuals<\/strong> or agreements<\/strong>. <\/p>\n\n\n\n

Be wary of franchises<\/strong> with a track record of litigation<\/strong> (Item 3) \u2013 particularly involving franchisee<\/strong> disputes<\/strong> \u2013 or bankruptcy<\/strong> filings.  <\/p>\n\n\n\n

Vague, ambiguous<\/strong> terms<\/strong> are another warning<\/strong> sign<\/strong>\u2014especially when defining a franchisee\u2019s<\/strong> territories<\/strong> and setting forth the requirements for renewals or<\/strong> terminations<\/strong>. <\/p>\n\n\n\n

And significant<\/strong> turnover<\/strong> (Item 20) may also give you pause. It suggests the franchisors<\/strong> are quick to drop franchisees or that franchisees are unhappy<\/strong>.<\/p>\n\n\n\n

When to Seek Legal or Financial Advice<\/h3>\n\n\n\n

Because FDDs<\/strong> involve complicated legal<\/strong> issues<\/strong> and financial<\/strong> data<\/strong>, the Federal Trade Commission (FTC) advises that potential franchisees consider having an attorney<\/strong> and an accountant<\/strong> review an FDD<\/strong> and franchise<\/strong> agreement<\/strong>. <\/p>\n\n\n\n

Where to Find Franchise Disclosure Documents<\/h2>\n\n\n\n

Keep in mind that many companies<\/strong> offering free or low-cost FDDs<\/strong> are actually franchise brokers<\/strong> who may steer you towards particular franchisors. <\/p>\n\n\n\n

But there are alternatives<\/strong>. FreeFDDLibrary.com gives registered users one free FDD<\/strong> a week. Similarly, there are subscription<\/strong> services<\/strong> such as Franchimp, which offers free-to-read FDDs<\/strong>. FranData has a large FDD library, but it charges higher<\/strong> fees<\/strong> than many competitors.<\/p>\n\n\n\n

State Registration Databases and Public Sources<\/h3>\n\n\n\n

Indiana<\/strong>, Minnesota<\/strong> and Wisconsin<\/strong> provide FDDs<\/strong> for their states\u2019 franchisors. California<\/strong> has a database<\/strong> for them as well, but many franchisors receive exemptions<\/strong> from inclusion in it. Additionally, NASAA<\/strong> maintains a free database of FDDs.\u00a0<\/p>\n\n\n\n

Requesting the Document from a Franchisor<\/h3>\n\n\n\n

A franchisor<\/strong> can hand-deliver, mail or fax the FDD<\/strong> to you. Alternatively, they can send it through email<\/strong>, a website<\/strong> or a disc<\/strong>. No matter which way they send it, they will ask you to sign an acknowledgement<\/strong> that you\u2019ve received the document<\/strong>. <\/p>\n\n\n\n

Once you\u2019ve done so, that receipt<\/strong> becomes part of the FDD<\/strong> itself. <\/p>\n\n\n\n

While that\u2019s a legal<\/strong> formality<\/strong>, realizing that your signature<\/strong> becomes part of the FDD<\/strong> is a potent reminder: <\/p>\n\n\n\n

While the FDD<\/strong> may be used as a sales<\/strong> tool<\/strong>, it\u2019s much more than that. It\u2019s a legal<\/strong> document<\/strong>. So take your time <\/strong>with it. Ask questions<\/strong>. Do your research<\/strong>. Interview franchisees<\/strong>. Make sure your goals<\/strong> are aligned<\/strong> with the franchisor\u2019s. Have your lawyer<\/strong> and accountant<\/strong> review it, and don\u2019t just decide based on what responsibilities<\/strong> and obligations<\/strong> you can live with. Look to see what you can thrive<\/strong> with, too. <\/p>\n\n\n\n

Because that\u2019s what being an<\/strong> entrepreneur<\/strong> is all about. 
<\/p>\n\n\n\n

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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.<\/em>
<\/p>\n","protected":false},"excerpt":{"rendered":"

With a franchise, budding entrepreneurs can jump into business ownership by using a larger company\u2019s proven model, thereby skipping the challenges of a brand launch and uncertain operational demands. On the other hand, given the investments that many franchisors require, how do you know which franchises are true moneymakers? What are the requirements for owning […]<\/p>\n","protected":false},"author":767,"featured_media":1562699,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"What Is a Franchise Disclosure Document (FDD)?","_seopress_titles_desc":"Discover our guide to Franchise Disclosure Documents (FDDs) and learn how to evaluate franchise opportunities, finances, and promises before investing.","_seopress_robots_index":"","content-type":"","_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1545074,1546899,1560093,1551078,1541434,1552004","_relevanssi_noindex_reason":"","footnotes":""},"categories":[3596,3597,3598,3599,3607],"tags":[],"type-de-post":[438],"class_list":{"0":"post-1562689","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-market-entry","8":"category-financing","9":"category-understanding-franchising","10":"category-getting-started","11":"category-entrepreneurship","12":"type-de-post-articles"},"acf":[],"_links":{"self":[{"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/posts\/1562689","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/users\/767"}],"replies":[{"embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/comments?post=1562689"}],"version-history":[{"count":5,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/posts\/1562689\/revisions"}],"predecessor-version":[{"id":1580662,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/posts\/1562689\/revisions\/1580662"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/media\/1562699"}],"wp:attachment":[{"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/media?parent=1562689"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/categories?post=1562689"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/tags?post=1562689"},{"taxonomy":"type-de-post","embeddable":true,"href":"https:\/\/lexpress-franchise.com\/en-us\/wp-json\/wp\/v2\/type-de-post?post=1562689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}