Every year franchisors are required to update their franchise disclosure documents [FDD] 120 days after the close of their fiscal year. For most franchisors the close of the fiscal year is December 31st. That means that under franchise disclosure laws, the FDD must be updated by April 30th.
To update the FDD, disclosures must be amended to include information about the previous year’s franchise outlets, franchisees, and franchisor financials. But, don’t stop there. Take a glance through the disclosures. Are some of the disclosures antiquated? For example do the disclosures talk about a POS system that you used 4 years ago. Are you considering an increase in initial franchise fees? Have you made changes to initial franchisee training program? During FDD updating process, it is also a good idea to review and make any changes to the FDD. These changes may include New Year initiative or simply updating any out-of-date information.
Franchisors are free and obligated to update the FDD throughout the year if material changes occur. But, amending the FDD during the year can be costly and delay franchise sales. If a change is made to the FDD during the fiscal year, franchisors may have to re-disclose prospective franchisees. And, the franchisor may be required to file amended registration with some states, which costs money and can result in delays for state registration effectiveness.
The number of disclosures and the amount of information contained in the FDD is huge. Trying to distill down any changes that may have occurred and not be reflected in the FDD can be confounding. To make it a little easier, we put together a checklist of the possible changes that may have occur. Take a look. Complete the check list.
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Trademarking and Franchise Law
