An individual in the United States who is selling a franchise of any kind is required to provide a potential buyer with what is known as a Franchise Disclosure Document. The purpose of this document is to inform a potential franchisee of all pertinent information so as to allow them to make a thorough, well-informed decision regarding a large investment.
It is divided up into 23 sections, and a potential franchisee is required to review it in full prior to execution. The seller must provide the Franchise Disclosure Document to the potential franchisee 14 days prior to the date of signing, or before any money is exchanged.
Some of the most important points which can be found in a Franchise Disclosure Document are the names of the franchisor and any parent companies or affiliates, information regarding previous or ongoing litigations, financial statements for a minimum of three years, the franchise agreement, and financing information. This is not an exhaustive list. A complete listing of all required sections of the document can be viewed here.
Drafting a Franchise Disclosure Document is a complex matter. A knowledgeable business law attorney can assist not only by offering guidance to insure that all required bases have been covered, but also to make sure both sides are well protected. In addition, a legal professional can also assist in the creation of a franchise agreement which will set the franchisor up for continued success, and the franchisee up for new success. Starting a new business is exciting! Set yourself up to walk into a new chapter with complete confidence and great success.