Prior to even commencing on drafting an FDD, the prospective franchisor should have applied for a federally registered trademark with the U.S. Patent & Trademark Office (USPTO). It can take 9 months or longer to obtain a registration with the USPTO, so it is important to start the process as soon as a business is considering franchising. Since the logo or name of the business is often the businesses most important asset, this is an important step to take early in the process. I have often seen a successful business neglect this important step only to find out when it is ready to franchise, that the name is not available to be registered with the USPTO. This then forces that business to rebrand, which is costly and time-consuming.
Before a business can offer franchises, the business must comply with various federal and state franchising laws. The federal law is governed by the Federal Trade Commission (FTC). The FTC requires that any business offering franchise opportunities must first provide any prospective franchise investor with a Franchise Disclosure Document (FDD) at least 14 calendar days prior to accepting any money from the investor or having the investor sign a franchise agreement. The contents of the FDD is highly regulated and can lead to severe penalties if not properly drafted. The FDD must be written in “plain English” and consists of 23 required items of disclosure. In another blog post I have identified the most critical items of the FDD for a prospective franchisee to consider. From a franchisor perspective these items must be completed by careful drafting to avoid any type of misrepresentation, inadvertent or otherwise. There are certain states in the United States that require that the FDD be registered with that state before you can offer to sell franchises to individuals who either reside in that state or for whom a territory will be offered in the state. The FDD must be updated annually and any state registrations must be annually renewed.
In addition to the 23 Items of the FDD, the FDD must contain the franchise agreement and other contracts that a franchisee will be required to sign, the table of contents of the Operations Manual, training topics, audited financial statements (which may be phased in for new franchisors) and other information. It is a very comprehensive document that typically consists of 200-300 pages in duration. The process of drafting an FDD for a start-up franchisor is a lengthy, detailed process that requires the expertise of experienced franchise attorneys like those at Lanard and Associates.
Contact Nancy Lanard, 215-392-0030 x101, today for a free consultation about your business and whether it can be franchised.