One of the first steps involved in buying or selling a franchise is the sharing of the Franchise Disclosure Document(FDD). Under federal and state law, the franchisor must give the FDD to a prospective franchisee. The FDD is intended to help ensure that franchisees can make informed decisions about whether to purchase the franchise. The last page of the FDD is a receipt that the franchisor will ask the franchisee to sign, date and return to it. This FDD receipt is important for several reasons, but to be clear, it does not signify agreement to buy or sell the franchise.
The signed receipt is necessary documentation for franchisors because under the Federal Trade Commission Franchise Rule, the FDD must be shared with prospective franchisees at least 14 days before an agreement is signed or any payment of money is made to the franchisor. In essence, the signed receipt starts the 14-day clock running. It also has a practical effect as franchisors often do not engage in serious talks about the franchise until the prospective franchisee has confirmed that he or she has received the FDD by signing the receipt. Of course, the FDD itself should be carefully reviewed and updated regularly by an attorney to ensure it complies with applicable laws and business practices and protects the rights of the franchisor.
For the franchisee, signing the FDD receipt is simply acknowledgement that he or she received the FDD. If the franchisee is genuinely considering buying the franchise, then there should not be cause for concern when asked to sign the receipt. As noted above, it does not act as a promise or contract to buy the franchise. However, importantly, the substance of the FDD should be reviewed by an attorney. This documentation offers crucial information to franchisees and legal representation can help ensure the franchisee fully understands the business and legal issues before entering into an agreement. Buying or selling a franchise is a complex process. If you are a franchisor, before you offer or sell franchises, you must comply with various federal and state laws and regulations. An experienced franchise attorney can help you avoid mistakes and protect your interests. Franchisees can also benefit significantly from the guidance of a franchise attorney to navigate the purchase process and negotiate and explain the agreement. Consult Lusthaus Law for information about FDDs and what you need to know about selling or buying a franchise.