Franchise Disclosure Document Template

In plain language: Identifies the franchisor, its affiliates, and predecessors; summarizes the business and industry; and discloses all pending and prior litigation and bankruptcy events involving the franchisor, its officers, and affiliates.

Common mistake: Disclosing only active litigation and omitting settled cases from the past 10 years. The FTC Franchise Rule requires disclosure of all covered actions regardless of outcome, and omissions trigger enforcement actions.

In plain language: Lists every fee the franchisee must pay to the franchisor or its affiliates before the business opens — including the franchise fee, training fees, and any required deposits.

Common mistake: Listing only the headline franchise fee and omitting technology fees, training surcharges, or grand-opening advertising contributions that are also paid before opening — these must all be disclosed in Item 5.

In plain language: Discloses all recurring and non-recurring fees payable during the term — royalties, marketing fund contributions, transfer fees, renewal fees, audit fees, and technology fees.

Common mistake: Burying variable or conditional fees in the franchise agreement without disclosing them in Item 6. Every fee the franchisee may be required to pay — even optional or conditional ones — must appear in this item.

In plain language: Provides a table of the total estimated investment range required to open and operate the franchise for three months, broken down by category — real estate, equipment, inventory, working capital, and fees.

Common mistake: Understating the working capital line to make the total investment look more attractive. If actual experience shows franchisees need 6 months of working capital to reach profitability, disclosing only 3 months creates litigation exposure.

In plain language: Defines whether the franchisee receives an exclusive, protected, or non-exclusive territory; what triggers territorial rights; and whether the franchisor reserves rights to sell through alternate channels — including e-commerce — within the territory.

Common mistake: Granting territorial protection without explicitly carving out the franchisor's online sales, corporate accounts, and alternative-channel rights. Franchisees later claim encroachment; courts have split on whether uncarved-out digital sales violate territorial provisions.

In plain language: The only section where a franchisor may legally disclose historical or projected sales, revenue, or profit data for the franchise system — and only if the information is substantiated and disclosed here.

Common mistake: Making verbal earnings representations to prospects that are not reflected in Item 19. Any statement about earnings potential — including statements made by brokers or area representatives — is an 'earnings claim' that must be supported by Item 19 disclosures.

In plain language: Provides tables showing the number of franchised and company-owned outlets opened, closed, transferred, and terminated over the past three fiscal years, plus contact information for current and former franchisees.

Common mistake: Providing outdated or incomplete franchisee contact lists. Regulators and prospective franchisees use Item 20 to conduct validation calls — omissions or stale contacts are among the most commonly cited FDD deficiencies in state audits.

In plain language: Attaches the franchisor's audited financial statements — typically two to three years of balance sheets, income statements, and cash flow statements — certified by an independent CPA.

Common mistake: Attempting to substitute internally prepared or reviewed financial statements for audited ones. Reviewed statements are not sufficient — GAAP-audited financials are required, and their absence is grounds for state denial of registration.

In plain language: Lists and attaches every agreement the franchisee will be required to sign — including the franchise agreement, lease addendum, non-compete agreement, personal guarantee, and any software or technology agreements.

Common mistake: Omitting a required exhibit — such as a personal guarantee or sublease — from Item 22. Any agreement the franchisee must sign must be listed and attached; missing exhibits void the disclosure for that component and may trigger rescission rights.

In plain language: A signed acknowledgment from the prospective franchisee confirming the date on which they received the FDD, establishing the 14-day disclosure clock and creating a paper trail of regulatory compliance.

Common mistake: Collecting the acknowledgment signature and the franchise agreement signature on the same date without documenting that 14 calendar days elapsed between FDD delivery and signing. This is the single most commonly cited FDD compliance deficiency.

A Franchise Disclosure Document (FDD) is a legally mandated pre-sale disclosure document that franchisors in the United States must provide to prospective franchisees before any agreement is signed or fee is paid. It contains 23 standardized items covering the franchisor's background, litigation history, all fees, territory rights, training obligations, franchisee obligations, and audited financial statements. The FTC Franchise Rule requires delivery at least 14 calendar days before signing or payment.

Any franchisor offering or selling franchises in the United States must comply with the FTC Franchise Rule and provide an FDD to each prospective franchisee. This applies regardless of the size of the franchise system or whether the franchise is sold in a registration state or a non-registration state. Franchisors operating exclusively outside the US are not subject to the FTC rule but may be subject to equivalent disclosure laws in Canada, Australia, and the EU.

The 23 items cover: (1) the franchisor and its parents; (2) business experience of key persons; (3) litigation history; (4) bankruptcy history; (5) initial fees; (6) other fees; (7) estimated initial investment; (8) restrictions on sources of products; (9) franchisee's obligations; (10) financing; (11) franchisor's assistance and training; (12) territory; (13) trademarks; (14) patents and proprietary information; (15) obligation to participate; (16) restrictions on what may be sold; (17) renewal, termination, and transfer; (18) public figures; (19) financial performance representations; (20) outlet information; (21) financial statements; (22) contracts; and (23) receipt acknowledgment.

The FTC Franchise Rule requires that a prospective franchisee receive the complete FDD at least 14 calendar days before signing any agreement or paying any fee. The clock starts on the day the franchisee receives the document — not the day it is sent. Collecting an application fee, deposit, or reservation fee before this period expires violates federal law and typically gives the franchisee the right to rescind the agreement and receive a refund.

Item 19 governs financial performance representations — any data about actual or projected revenues, sales, or earnings of franchise units. Franchisors are not required to include an Item 19 disclosure, but if they choose not to, they cannot make any verbal or written earnings claims to prospects. Many franchisors include Item 19 because prospects and brokers increasingly expect it, and a strong Item 19 is a meaningful sales differentiator. Any Item 19 figures must be substantiated with actual historical data.

Fourteen states impose their own franchise registration or disclosure requirements in addition to the federal FTC Franchise Rule: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, Virginia, Washington, and Wisconsin. These states require the franchisor to file the FDD with a state agency and receive approval — or a notice of effectiveness — before offering franchises to residents of that state. Registration renewal is typically required annually.

The FTC Franchise Rule requires franchisors to update their FDD within 120 days after the close of each fiscal year. In addition, a material change — such as a new fee, a significant litigation event, or a change in ownership — requires a prompt amendment to the FDD before continued franchise sales. In registration states, material amendments must be filed with and approved by the state agency before the amended FDD is used.

No. The FTC Franchise Rule does not permit waivers of the 14-day disclosure period. Any clause in a franchise agreement purporting to waive or shorten this period is unenforceable. Some registration states impose additional protections and also prohibit waiver of other franchisee rights — provisions that appear enforceable under federal law may be void in California, Minnesota, or other relationship-law states.

The FDD is among the most technically regulated disclosure documents in US commercial law. While a high-quality template provides the correct 23-item structure and format, the actual content — particularly Items 19, 21, and the attached franchise agreement — requires legal counsel experienced in franchise law to review before any franchise is offered or sold. Filing errors in registration states result in denial; substantive errors in non-registration states create rescission exposure. Most franchise attorneys charge $15,000–$40,000 for an initial FDD preparation.