LEARNING

ABOUT
FRANCHISE
DOCUMENTS
GROUP 2
 TABLE OF CONTENTS

01 02 03

Franchise What is Evaluating

Agreement included in the Controls in Franchisees
Franchise
Agreement?

04

04
FDD provides information that is
important for prospective
franchisees to make a substantial
investment.
01
Franchise
Agreement
Legal document outlining the rights
and responsibilities, including the
duration of the agreement, the start
and end dates, the extension terms,
and the termination of the contract.
 02
What is included
in the Franchise
Agreement?
 1. Terms of Agreement 2. Renewal

The extension period allows

The FA shall describe the
the franchisor to review the
contract detailing the
FA, allowing him to decide
relationship that the franchisor
whether not to extend the
enters with the franchisor.
agreement between the two
parties.
3. Investment Amount and Fees –

This section of the FA outlines the

overall investment costs and their
inclusions, as well as the date on 4. Training and
which the franchiser is to be paid.
Included in these are:
Support
The FA should state
• Franchise fees the type of training
and support that
• Royalties the franchisor will
provide.
• Marketing contribution
System
5. Purchase
of Products

Items and supplies used in

the franchise system
should remain consistent.
The FA, therefore, specifies
that the franchisee can
purchase only from
suppliers accredited by
the franchisor.
 6. Territory

The Territory shall define

the geographical limits
within which a franchisee
can operate or within
which no other unit of the
franchisee’s company
can compete.
7. Termination
7.Termination The FA bears in it the
basis for termination of
the contract. In certain
cases, infringements of
such terms can also be
remedied, but if they are
replicated overtime or
the inability to comply
with them may still lead
to the contract’s
termination.
 03 Evaluating controls in
franchisees involves assessing
the measures and guidelines
Evaluating that franchisors put in place
Controls in to maintain consistency,
quality and brand integrity
Franchisees
across their franchise
network. Here are some key
aspects to consider when
evaluating controls for
franchisees.

Evaluating Controls in
Franchisees
1. Operational
Standards
Evaluate the operational
procedures and standards
provided by the franchisor. These
may cover everything from
product/service quality to
customer service protocols.
5. Compliance with
Legal and Regulatory
Requirements.
Ensure that franchisees are aware of
2. Training and adhere to all legal and regulatory
requirements related to their specific
Programs. industry and location.
Assess the training programs
offered by the franchisor.
Determine whether they
adequately prepare
franchisees and their staff to 4. Supply Chain
meet the franchisor’s Management.
operational and service
standards. Assess how the franchisor
manages the supply chain to
ensure that franchisees have
3. Quality access to consistent and high-
Assurance. quality products or services.
Review the quality assurance
measures in place, including
regular inspections, audits, and
performance evaluations to
ensure franchises meet
established standards.
Franchise Disclosure
Document (FDD)
The Franchise Disclosure
Document or FDD is a legal
disclosure document that must
be issued to persons interested in
acquiring a franchise as part of
the pre-sale due diligence process
and provides information
necessary for prospective
franchisees to make a substantial
investment .
Importance
John Moser, the president of
MBB Management, says the
FDD’s purpose “is to give the
person the same knowledge so
they can make an informed
decision. Our FDD is about the
industry, where it’s going,
weaknesses, the competition.
Generally, all the things they
wouldn’t find out themselves”.
 04
FDD provides
information that is
important for
prospective franchisees
to make a substantial
investment. This
includes:
1. The Franchisor, and any
Parents, Predecessors and
Affiliates.
• Franchisor - any person who grants a franchise and participates
in the franchise relationship.

Parents - an entity that controls another entity directly, or indirectly

through one or more subsidiaries.

Affiliate - an entity controlled by, controlling, or under common

control with, another entity.

Predecessor - a person from whom the franchisor acquired,

directly or indirectly, the major portion of the franchisor's assets.
2. Business Experience - Information
about the franchisor's experience in the
specific industry or market is provided.
This might include the number of years
the franchisor has been operating in the
industry, any notable achievements,
and the evolution of the business over
time.
3. Litigation - refers to legal actions,
disputes, or lawsuits that involve the
franchisor, its key personnel, or the
franchise system. The purpose of disclosing
litigation in the FDD is to provide potential
franchisees with transparency regarding any
legal matters that may have arisen in
connection with the franchisor or the
franchise system.

4. Bankruptcy - refers to a legal status or condition

in which an individual or entity is unable to repay its
debts and seeks protection from its creditors under
federal bankruptcy laws. The inclusion of bankruptcy
information in the FDD is important because it allows
potential franchisees to assess the financial stability
and risk associated with the franchisor.

5. Initial Fees
The franchisor (and all its
affiliates) must report all
the initial fees they charge
to the franchisor before
opening.
franchisees to buy the goods
6. Other Fees
Extra fees that you may
have to pay to the
franchiser or the partner,
8. Restrictions as well as any charges that
on Sources of Products the franchiser collects or
and Services. otherwise imposes on
third parties.
Franchisors require
and service needed only
from approved vendors.

7. Estimated Initial
Investment

The franchisor shall disclose

a range of the minimum and
maximum of all fees, costs,
and expenses incurred by
the franchisor before the
opening of the business.
9. Franchisee’s Obligation
[1] It is a table that lists the principal obligations under the franchise and other
agreements. It helps identify your main obligations under these agreements
and provides more detailed information in this disclosure document.
[2]
 10. Financing
This section explains the
financial aspects of becoming a
franchisee, helping franchisees
make informed investment
decisions. The franchisors must
disclose financing options and
their terms and conditions.
 11. Franchisors [2] In this document, the

Assistance,
franchisor must disclose the
[1] Provides information to following:
MERCURY
potential franchisees about Advertising, ✓ Pre & Post Support
the practical aspects of
VENUS
owning and operating the Computer ✓ Advertising Obligations
✓ Length of Time to Open
franchise. It Venus
is one of the
is the second
planet from the Sun System and Franchise
most critical disclosure
products. Training ✓ Computer Systems
✓ Training Program
✓ Operating Manual Contents
 11. Franchisors
[1] This contains detailed
Assistance,
information and explanations [2] Three important aspects
MERCURY when running a
12. about the specific territory
Advertising,
granted to a franchisee. It
to consider
franchise business:
TERRITORY Computer
serves as a valuable resource ,
giving franchisees insights into 1. Location & Territory
System and
market potential, competition,
and growth opportunities in
2.
3.
Rights
Competition
Training
their designated area.
 13. Trademarks.

This section must identify each

principal “Mark” (trade name,
trademark, service mark service
name or logotype) to be licensed
to you and must state whether the
franchisee is required to modify or
discontinue use of a mark under
any circumstances. 14. Patents, Copyrights
and Proprietary Information.

The section spells out the

patents and copyrights held
by the franchisor.
 16. Restrictions on What the
Franchisee May Sell.

In most cases, the franchisor

would enable the franchisor
to sell only products and
15. Obligation to Participate in the Actual
services that are part of the
Operation of the Franchise Business. franchised sector. This section
sets out these constraints.
This section discloses whether the franchisor
must be directly involved in the
management of the franchise. If there is no
such provision, this section must state
whether the franchisee recommends such
participation, whether the person who
manages day-to-day operations must
complete the franchisee’s training
program, and Whether the franchisee must
own an equity interest in the franchisee.
17.Renewal, Termination, Transfer and
Dispute Resolution
Article 17 includes a cross-referencing
table for the Franchise Agreement for 23
different line products. It is distinguished
from item 9 in that it contains a concise
statement of the substance of the specific
franchise agreement and the location of
the agreement.

18.Public Figures

This section requires the franchisor to

disclose whether it uses a famous person to
endorse the franchise. If so, it must disclose
the compensation paid or promised to the
person, the person’s involvement in
management or control of the franchisor and
the amount of the person’s investment in the
franchisor.
19.Financial Performance Representations
The Financial Performance Representation
(FPR) is any text, map, arithmetic calculation,
math formula or other representation that
would allow a potential franchisee to decide
what they should gain. The only way the
franchisor or its sales staff or brokers can sell
the FPR is mentioned in item 19.If no such
information is included in Item19, any
statements made by the franchisor about your
future earnings are in breach of the law.
20. Outlets and Franchise Information
This segment offers details on current outlets in
the franchise system. It includes outlet transfers
and the status of franchised and company-owned
outlets-for the previous three fiscal years, as well
as the planned openings for the next fiscal year. It
must also provide information on any changes to
the reporting process, any confidentiality
agreements signed by franchisees over the last
three fiscal years (gag clauses’), and information
on any trademark franchisee associations.
 .

21. FINANCIAL
STATEMENT
Show franchisor’s
audited financials for the
past 3 fiscal years.
 22. CONTRACTS

Provides copies of various

contracts signed by the
franchisor.
23. RECEIPT
Final acknowledgment
and signature section.
 THANKS YOU
FOR
LISTENING
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