Unscrupulous franchisors and their representatives used emotion, guile, and outright fraud to attract the inexperienced to unproven, get-rich ventures. Due to the growing popularity of franchise ownership and the accompanying abuses, the Federal Trade Commission (FTC) issued its Franchise Rule in 1979, subsequently updated in 2008. The 1979 Rule required franchisors to provide potential franchisees with a Uniform Franchise Offering Circular, renamed in the 2008 legislation as the FDD.
The purpose of the FDD is to ensure that potential franchise buyers have sufficient factual information necessary to make an informed decision about investing in the offeror’s franchise. The FDD is not the franchise agreement, a legally binding legal document that governs the relationship between franchisor and franchisee. FDDs are uniform for all franchisees within a given system, while each franchise agreement is unique to the franchisee signing it. By rule, the franchise agreement is one of the 23 identified disclosures (#22. Contracts) included in the FDD.
The FTC does not approve nor verify the veracity or completeness of the information contained in the FDD, simply requiring certain disclosures to prospective franchisees. However, some states require that the FDD be registered and approved before sales can occur. Other states, including Florida, do not require registration of the FDD but file it with the state before solicitation begins.