What are the key provisions of the franchise documents that every franchisee should know? Every prospective franchisee should read through all 23 items of the franchise disclosure document (FDD), but pay particular attention to the following items:

Item 1 of the FDD discusses the background of the company, its parents and affiliates. It also is the area that discloses the competition and regulations in the industry.

Item 3 of the FDD discloses the material litigation in which the franchisor is involved. A prospective franchisee should be wary if there are many suits against the franchisor by the franchisees or many suits by the franchisor against its franchisees.

Items 5, 6 & 7 of the FDD are the financial disclosures that every prospective franchisee should read carefully, including the footnotes to each item. These items disclose the obligations of the franchisee for the upfront fees (Item 5), on-going fees (Item 6) and the likely costs the prospective franchisee can expect to open the business (Item 7 chart). Read more »