Last month I did a post about prepping for the annual Franchise Disclosure Document (FDD) update. That is great kick-off to talk about when a FDD must be updated. Here are some basic questions and answers about FDD updates.
When I need to update the FDD?
The FDD must be updated on 2 occasions. An update to the FDD must be made: 120 days within the end of the fiscal year and 60 days following the occurrence of material change to the FDD.
What is a material changes to the FDD?
A material change to the FDD is when there is a change to any of the information contained in the FDD what would affect whether a prospective franchisee would buy or not buy a franchise. Some of the examples of material changes included: a change in initial fees, royalty fees, or the loss or addition management staff. If you are unsure what a material change is, ask us.
What happens if the FDD is not updated timely, can I sell franchises?
No. If the FDD is not updated timely, the franchisor must stop selling franchises until the FDD is updated.
If a material change is made to the FDD, do I have to register the FDD with the registrations states?
Yes. If a material change is made to the FDD an amendment registration must be made with the registration states.
When the FDD is updated, do I have to give prospective franchisees the new updated FDD?
Yes. Even if the prospective franchisees received the old FDD, the prospective franchise should be disclosed with the new updated FDD and 14 days should lapse before the signing of the franchise or other agreements or the payment of any funds.