A Franchise Disclosure Document (FDD) is a legal document that franchisors in Australia must provide to prospective franchisees. This detailed disclosure document contains information about the franchisor, the franchise system, and the franchisor’s and franchisee’s rights and obligations.

Here, we will discuss what an FDD is, why it is crucial, where you can get it from, and what you need to pay attention to when reviewing it.

What Is A Franchise Disclosure Document?

A Franchise Disclosure Document is a legal document designed to provide potential franchisees with all the information they need to make an informed decision about investing in a franchise. The document typically contains information about the franchisor, the franchise system, the initial and ongoing fees, and the terms and conditions of the franchise agreement.

It also includes details of any litigation or disputes involving the franchisor or its officers and any other relevant information that a prospective franchisee would need to know before investing in the franchise.

Why Is It Important?

The FDD is an important document that provides prospective franchisees with a clear understanding of what they are getting into when they invest in a franchise. This legal document ensures that potential franchisees fully understand the risks and obligations involved. It is usually provided in a hard copy format, although some franchisors may also provide an electronic copy of the FDD.

Under the Franchising Code of Conduct, as per the law, franchisors must provide potential franchisees with a Franchise Disclosure Document (FDD) at least 14 days before the franchise agreement signing.

You should receive the FDD from the franchisor before you sign any agreement or pay any money. This requirement aims to give potential franchisees enough time to review the FDD and seek professional advice before entering into the franchise agreement.

It is important to note that the 14-day period starts from the day the franchisor provides the FDD to the potential franchisee, not from the day the potential franchisee receives the FDD. Therefore, ensure that you get the FDD well before any proposed signing date, so you have adequate time to go through it.

Things To Pay Attention To When Reviewing The FDD

When reviewing the FDD, prospective franchisees should consider several important things. These include the following:

  • The franchisor’s history and experience– Always review the franchisor’s history and experience in the industry. This can provide insight into the franchisor’s ability to support its franchisees and provide ongoing training and support.
  • The franchise system– The FDD should provide details about the franchise system, including the products and services that are offered, the target market, and the competition. It can help prospective franchisees understand the potential for success in the franchise system.
  • Initial and ongoing fees- It should have details of all the fees required to be paid by the franchisee, including the initial franchise fee, ongoing royalties, and any marketing or advertising fees. You must fully understand the franchisee’s financial obligations before investing in the franchise.
  • Franchise Agreement– This legally binding document should provide a copy of the agreement that outlines the franchisor’s and franchisee’s rights and responsibilities. Review the franchise agreement carefully to ensure that you fully understand the terms and conditions of the franchise.
  • Litigation and disputes- The FDD should provide details of any litigation or disputes involving the franchisor or its officers. This can provide insight into any potential risks associated with investing in the franchise.

Do You Need To Show The Franchise Disclosure Document To A Lawyer Before Signing The Agreement?

The FDD can be a complex legal document and may contain clauses or terms that are difficult for a layperson to understand fully. A lawyer with experience in franchising can review the FDD and advise you on the terms and conditions of the franchise agreement and any potential risks associated with the franchise. They will also tell you whether the franchise is a good investment. For more information on why reading the fine print in a FDD matters, find out more here.

The Franchising Code of Conduct in Australia recommends that potential franchisees seek professional advice, including legal advice, before entering into a franchise agreement. The franchisor must also include a statement in the FDD advising the potential franchisee to obtain such advice.

If you want more information on the franchising disclosure document or about the franchising process, contact the experts at The Franchise Institute. You can call us at 1300 855 435 or fill out this contact form, and we will contact you as soon as possible to answer all your questions.