In 1978, the Federal Trade Commission implemented the FTC Rule. The FTC Rule requires that franchisors file annually a Franchise Disclosure Document (FDD) and provide it to every potential franchise buyer. The goal of the FDD is to provide buyers with vetted and validated information that can be used by them to make a decision.
FDDs must be provided to candidates at least two weeks before a sale can be completed, and it must be updated annually or whenever a material change occurs in the business.
Reading an FDD is a lot like reading a public company’s corporate 10k filing. The FDD exists for two primary reasons: to protect potential buyers as a candidate and to protect the franchisor against allegations of misleading claims. There are 23 distinct sections of an FDD, each of which serves to answer a specific question.