Tom Spadea was recently featured on a new podcast called “Franchising and You.” This podcast is geared toward:
- People interested in learning more about owning their own business and considering franchising as the path to business ownership
- People who are interested in expanding their portfolio of businesses and franchises
- Current business owners exploring whether or not to franchise their business
During this episode, Tom shared his knowledge about Franchise Disclosure Documents (FDDs). Tom said that understanding FDDs is an excellent place to start learning about the industry.
Take a listen below!
A Brief History of the FDD
Tom discussed the origin of the FDD, going back 50 plus years to when franchising was just beginning to take off. In the early years, there were few regulations in place, and some franchisees were being taken advantage of by franchisors.
Some more progressive state governments, like New York, Illinois & California, started to implement more formal regulations. Eventually, the federal government got involved and started to regulate the franchise industry on a national level and the Universal Franchise Offering Circular (the OFOC) was born in 1978. The regulatory landscape has continued to evolve, and in 2007, the document got a new name – the Franchise Disclosure Document (the FDD).
Why an FDD?
The main issue with the franchise industry in the early years was a lack of adequate information flow between franchisees and franchisors.
Tom said that the government’s regulatory approach was to level the information playing field by forcing franchisors, who have more information than franchisees, to release and disclose certain data points on the offering to prospective franchisees. This was to help them make a more informed decision.
He compared FDD’s to Rental Disclosure Documents. In Philadelphia, residential landlords are required to disclose certain information to tenants. This could be information about lead paint or laws regarding tenant’s rights. The landlord must present this document for the tenant to sign before they sign their lease. However, similarly to the FDD, the Rental Disclosure Document is not the contract, the lease is. Likewise, the FDD is not a contract, the Franchise Agreement is.
Learn More About Franchise Disclosure Documents
To learn more about the difference between Franchise Disclosure Documents and Franchise Agreements, check out our previous post!