To have a successful franchise system, prospective franchisees must be suitable for the role and clear about the opportunity. Before they sign any legally binding contract, you must provide franchisees with the information they need to decide whether or not to accept your proposition. A franchise disclosure document facilitates this transparency. Honesty benefits both you and the franchisee. This article will explore key terms to include in a franchise disclosure document and how franchise disclosure works.
What is a Franchise Disclosure Document?
A franchise disclosure document (‘FDD’) is a legal document franchisors will give to prospective franchisees. The document contains important information relating to the business. The document ensures prospective franchisees are fully informed about the franchise opportunity. Within the document, you will reveal vital details about your business and the franchise system. The franchisee will have time to read the FDD. Once they have digested the information, they can ask questions.
Legal Requirements
In other territories, the FDD must legally follow a prescribed format. However, in the UK, no specific franchising disclosure laws exist. Still, it is good commercial practice to inform prospective franchisees through disclosure.
The British Franchise Association (BFA) Code of Ethics outlines that franchisors must provide complete and accurate disclosure of all relevant information to franchisees before they sign the franchise agreement. You must be transparent and honest about the franchise opportunity from the outset. As the BFA highlights, disclosure should start from the beginning of any contact between you and prospective franchisees. You will provide formal disclosure as a written document in the form of the FDD.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form, and we will contact you on the same business day.
Format of the Franchise Disclosure Document
In the UK, your FDD does not need to follow a specific format. Its structure and contents will vary depending on the franchise and what industry you operate in.
The BFA outlines six categories of information that you should cover within the document. The following table summarises some of the information to include within each category.
| Category | Explanation |
| The franchised business and the franchisor’s finances | You should include your business’ background and development history in the FDD. Also, you should have the business’ financial information here. |
| Key personnel involved in the franchise | Cover information about key personnel involved in your business, such as their: • names; • relevant professional and educational history; and • financial information. |
| The opportunity | Describe the franchise opportunity and what it entails. |
| Franchisees | Disclose information about franchisees, such as: • who the other franchisees are; • how many there are in your franchise system; • their locations; and • recent terminations. |
| Projections for the business’ future expenses and revenues | Illustrate financial projections. Demonstrate what you have previously achieved in your business and franchise and show what they could achieve. Ensure that you clearly outline that forecasts are not guaranteed. |
| The franchise agreement | Provide a copy of the franchise agreement. |
A Dual Benefit
The FDD plays an important role in franchising by creating a fair and transparent relationship between the franchisee and the franchisor from the outset. There are strong dual benefits of FDDs.
| Franchisor benefits | Franchisee benefits |
| You must be transparent about the franchise opportunity you are offering. Fully informed prospective franchisees mean only candidates who feel they are suitable for the role will continue the process of becoming a franchisee. For a successful franchise, you will only want to bring on people who align with your business’ goals. | Franchisees learn more about a franchise opportunity by reading the FDD. They can decide whether it is an appropriate opportunity for them and consider aspects such as the financial history of the franchisor and any legal disputes they are involved in. In the UK, the corporate principle, ‘buyer beware,’ will legally underpin a decision to join a franchise. Accordingly, the onus is on franchisees to make the right decision for them and conduct their own research. |
Key Considerations for Franchisors
Remember that full disclosure from the start of your relationship with franchisees ensures clarity about the opportunity on offer. Your honesty can strengthen the trust between you and the franchisees and set your franchise up for growth and success.
This handbook covers all the essential topics you need to know about franchising your business.
Key Takeaways
The franchise disclosure document reveals key information about your business, the franchise, and the opportunity to prospective franchisees. In the UK, there are no specific requirements for franchise disclosure. However, providing full and accurate information about the opportunity is good practice. This protects you and your franchisees and creates a relationship of trust from the outset.
If you need advice about your franchise disclosure document or help creating it, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
We appreciate your feedback! Request your free consultation now.
