FDD Preparation, Contents, and Delivery
The Franchise Disclosure Document (FDD) is the disclosure vehicle. In California the offering circular must contain the 23 FTC-required Items plus California-specific disclosures, including Item 20 and the required California cover page and risk factors, and must include audited financial statements meeting DFPI requirements.
Core Items candidates must know: Item 1 (franchisor, predecessors, affiliates); Item 2 (business experience of officers/directors); Item 3 (litigation-administrative, criminal, civil); Item 4 (bankruptcy); Item 5 (initial fees); Item 6 (other fees); Item 7 (estimated initial investment-must show low-high range and who pays); Item 8 (restrictions on sources of products/services); Item 9 (franchisee's obligations table); Item 10 (financing); Item 11 (franchisor's obligations); Item 12 (territory); Item 13 (trademarks); Item 14 (patents/copyrights/proprietary information); Item 15 (obligation to participate in actual operation); Item 16 (restrictions on what franchisee may sell); Item 17 (renewal, termination, transfer, dispute resolution); Item 18 (public figures); Item 19 (financial performance representations-only with a reasonable basis and clear disclosure); Item 20 (outlets and franchisee information); Item 21 (financial statements); Item 22 (contracts); Item 23 (receipts).
Traps: Item 19 is the most tested-no earnings claims without a reasonable basis and written substantiation; hypothetical or pro forma figures must be labeled. Delivery timing: the FDD must be delivered at least 14 calendar days before signing a binding agreement or paying consideration, and the receipt must be returned. Material changes require updating.
Rule of thumb: 14 days + signed receipt = defensible delivery.
Worked example: Franchisor emails an FDD on March 1 and the franchisee signs March 10. That is only 9 days-violation. Delivery must be at least 14 calendar days before execution.