The 411 on FDDs: What Potential Franchisees Need to Know About Franchise Disclosure Documents

Many prospective franchisees may feel their excitement quelled when faced with the complicated-seeming, multi-page document that precedes any franchise unit purchase: the franchise disclosure document, or FDD, reports Canadian Business Franchise. Faced with walls of text, franchise candidates might be tempted to skim, or to assume that all franchise agreements are the same, the article says.

But are they? The article puts it in simple terms: “They are not.”

The article highlights three types of common franchise agreements, or FDDs: the “single-unit franchise agreement”, the “multiple-unit franchise agreement” and the “area development franchise agreement.”

The first of these typically refers to a franchisee’s right to own and operate a single unit, either in a predetermined location or, more frequently, an established territory, the article says. The second type of agreement functions similarly, but also relates to the order and means by which subsequent units can be opened after the first, according to the article. Lastly, the third type of agreement refers to franchisees signing onto, typically, exclusive operation of locations in large territories, meaning that they must also agree to a “performance schedule,” according to the article.