Dispute resolution

Franchise Fundamentals: Taking a deep dive into the Franchise Disclosure Document

• The third in the FTC’s Franchise Fundamentals blog series walks through an essential part of that evaluation: an in-depth review of the Financial Disclosure Document (FDD) required by the FTC’s Franchise Rule.
• You must receive the Franchise Disclosure Document at least 14 days before you’re asked to sign any contract or pay any money to the franchisor or one of its affiliates.
• In fact, you have the right to the FDD once the franchisor has received your application and agrees to consider it.

Franchisor’s Background (FDD Item 1)

Item 1 provides background information about the franchisor and any parent companies, predecessors, and affiliates, including how long the franchise has been in business. It also lets you know if there are any legal requirements unique to the franchised business, like the need to get a special license or permit. This can help you understand the costs and risks you would be taking on.

Business Background (FDD Item 2)

Remember the old adage “People are known by the company they keep”? Well, companies are known by the people they keep, which is why Item 2 identifies directors, principal officers, and other key executives. Pay attention to their business backgrounds, their experience in managing a franchise system, and how long they’ve been with the franchisor.

Litigation History (FDD Item 3)

• Lawsuits against the franchisor could mean it hasn’t honored its agreements or that franchisees are dissatisfied with its performance.
• Item 3 also says whether the franchisor has sued any of its franchisees in the past year.

Bankruptcy (FDD Item 4)

Have the franchisor, its affiliates, or any of its executives filed for bankruptcy? Item 4 discloses that information and could give you insights into the financial condition of the business. 

Initial and Other Fees (FDD Items 5-7)

• Items 5-7 go over some of the costs involved in starting and operating a franchise.
• That could include things like deposits or franchise fees (some of which may be non-refundable); what you’ll have to pay for initial inventory, signs, equipment, leases, or rentals; and ongoing costs, like royalties and advertising fees.

Supplier, Territory and Customer Restrictions (FDD Items 8 and 12)

• Does the franchisor limit what goods and services you can offer?
• Must you buy from particular suppliers designated by the franchisor?
• Also, a franchisor may limit your business to a specific location or sales territory.
• Are you OK with restrictions that may limit your ability to exercise your own business judgment?

Advertising and Training (FDD Item 11)

• Advertising and training can have a significant impact on a franchisee’s bottom line.
• Franchisors often require franchisees to contribute a portion of sales to advertising funds.
• Item 11 also includes information about training.
• Talk to recent franchisees to get their take on the quality of the training.

Renewal, Termination, Transfer, and Dispute Resolution (FDD Item 17)

• Find out about the renewal process – what do you have to do to qualify for renewal and will fees or other contract terms change?
• If you have a dispute with the franchisor, can you go to court or must you use arbitration instead?

Financial Performance Representations (FDD Item 19) 

• But here’s the important thing: Any claims of that nature must be in Item 19.
• And if the claims aren’t in Item 19, the franchisor – as well as brokers, dealers, or other sellers – can’t make any spoken or written financial performance claims.
• So if a franchisor or other seller makes financial claims that aren’t included in Item 19, that should set off your baloney detector.

Franchisee and Franchise System Information (FDD Item 20)

• Item 20 provides charts showing growth and owner turnover in the franchisor’s system.
• Item 20 also unlocks a key source of highly relevant data: contact information for current and former franchisees.
• Although some may have signed confidentiality agreements, if they’re willing to talk, ask if they had problems with their outlet, if they made a profit, and why they left the franchise system.
• Item 20 also lists the franchisee associations sponsored by the franchisor.

Financial Statements (FDD Item 21)

• Item 21 provides the franchisor’s three most recent audited annual financial statements.
• Even if you’re comfortable reading financial statements, it’s a good idea to hire an accountant to go over them with you.

Contracts (FDD Item 22)

• American Lithium is actively engaged in the development of large-scale lithium projects within mining-friendly jurisdictions throughout the Americas.
• This news release contains certain forward-looking information and forward-looking statements (collectively “forward-looking statements”) within the meaning of applicable securities legislation.
• American Lithium undertakes no obligation to update forward-looking statements except as required by applicable securities laws.
• American Lithium has no assurance that the outcome of these appeals will be in the Company’s favour.

• This news release contains "forward-looking information" concerning anticipated developments and events that may occur in the future.
• Forward-looking information contained in this news release includes but is not limited to the details of the contract with the Cruise provider and its future benefits to Canada Jetlines, and business of Canada Jetlines.
• While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.
• Except as required by applicable securities laws, the Company does not undertake any obligation to publicly update any forward-looking information.

• Notably, rights holders face challenges in procuring effective and efficient site blocking in all three of these countries.
• These consumer surveys acknowledge site blocking as an effective tool to mitigate piracy harm.
• However there remains issues with the time and cost involved with obtaining site blocking orders in Singapore.
• The surveys will continue to be repeated across the same countries annually, and in doing so, will continue to provide longitudinal analysis of consumer behavioral trends towards piracy and enforcement measures around the region.