Franchise agreement

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)

• SHANGHAI, Dec. 23, 2022 /PRNewswire/ -- ZTO Express (Cayman) Inc. (NYSE: ZTO and HKEX: 2057), a leading and fast-growing express delivery company in China ("ZTO" or the "Company"), today provides an update on the Company's proposed voluntary conversion of its secondary listing status on The Main Board of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") to dual-primary listing (the "Primary Conversion").
• The Company has applied to the Hong Kong Stock Exchange with regards to the Primary Conversion and the Company has received the acknowledgement from the Hong Kong Stock Exchange in respect of the application for the Primary Conversion.
• The effective date (the "Effective Date") on which the Primary Conversion shall become effective is expected to be May 1, 2023, subject to the approval of the Hong Kong Stock Exchange.
• Upon the Primary Conversion being effective, the Company will be dual-primary listed on the Hong Kong Stock Exchange in Hong Kong and the NYSE in the United States.

• Mednow Inc. (Mednow or the Company) (TSXV:MNOW) (OTCQX:MDNWF) Canadas on-demand virtual pharmacy, is officially open to serve patients in Quebec.
• This newest Mednow location will serve as the pharmacy distribution center (the Quebec Pharmacy Distribution Center) for all Mednow customers in Quebec, offering Mednows fast, free prescription delivery and deep commitment to holistic, pharmacist-led patient care.
• I studied to become a pharmacist out of a deep desire to help people, said Raji Al-Kurdi, Mednow Director of Pharmacy Operations, Quebec.
• The Quebec Pharmacy Distribution Center is owned by Pharmacie Raji Al-Kurdi Inc. and is operated pursuant to a franchise agreement (the Franchise Agreement) between Mednow and Pharmacie Raji Al-Kurdi Inc. ("Franchisee").

• Pokemoto Now Has 38 Franchise Agreements Signed
  League City, Texas, June 02, 2022 (GLOBE NEWSWIRE) -- Pokemoto, Muscle Maker, Inc.s (Nasdaq: GRIL ) growing Hawaiian Poke Bowl restaurant concept, today announced the signing of a new Pokemoto franchise agreement for the Highland Village/Flower Mound, Texas market.
• The Hawaiian poke chain currently has eight locations in the development and construction stages along with multiple LOIs submitted for lease negotiations.
• Residents of Flower Mound and Highland Village enjoy close proximity to Dallas and Fort Worth attractions, jobs, excellent schools and coming soon Pokemoto, Hawaiian Poke!
• Brands include Muscle Maker Grill restaurants, Pokemoto Hawaiian Poke and SuperFit Foods meal prep.