How to Draft a Franchise Disclosure Document (FDD)

A Franchise Disclosure Document (FDD) is the federally required disclosure a franchisor must give every prospective franchisee before selling them a franchise, and the law dictates exactly what goes in it: 23 numbered items, a cover page, and two signed receipts, prepared in the format set by the FTC Franchise Rule. Draft it carefully and it becomes the backbone of a clean, defensible sales process. Draft it loosely and it becomes the first exhibit in a franchisee’s lawsuit.

This guide walks franchisors through what the FDD is, the rules that govern it, what each item covers, and the drafting mistakes that most often cause trouble.

What the FDD is — and what the law requires

The FDD is governed by the FTC Franchise Rule (16 C.F.R. Part 436), which applies nationwide. The Rule does not approve your franchise or judge whether it is a good investment; it requires presale disclosure so the buyer can evaluate the opportunity. Two timing rules sit at the center of compliance:

• The 14-day rule. You must give a prospect the complete FDD at least 14 calendar days before they sign any binding agreement or pay you any money. The clock is on the buyer’s side, and skipping it is one of the most common — and most provable — violations.
• The annual update. You must update the FDD within 120 days after the close of your fiscal year, and you must revise it within a reasonable time after the close of any quarter in which a material change occurred. Material changes to financial performance figures must be disclosed when they happen.

A “franchise” that triggers these rules has three elements: the franchisee uses your trademark or brand, you exert significant control over (or give significant assistance to) their operation, and they pay you at least $500 within the first six months. If your arrangement hits all three, you are a franchisor whether you call yourself one or not.

Federal law is only half the picture. Roughly 14 states — the “registration states” — require you to register or file the FDD with a state agency before you can offer or sell franchises there, and several more require filing in narrower situations. Budget time for state review on top of drafting.

The 23 items, grouped

The Rule prescribes 23 disclosure items in a fixed order. It helps to think of them in six clusters:

Every item has detailed content requirements. The point of the structure is comparability: a buyer can lay your FDD next to a competitor’s and read the same item number for the same kind of information.

Drafting tips that keep you out of trouble

Write Item 7 to reflect real numbers. The estimated initial investment is where franchisees check whether they can afford to open. Build the range from actual recent openings, state your assumptions, and update it as costs move. A lowball Item 7 is a magnet for claims.

Be deliberate about Item 19. Financial performance representations are voluntary — but if you make any claim about actual or potential earnings, anywhere in your sales process, it must appear in Item 19 and rest on a reasonable basis with written substantiation you can produce on request. Salespeople who quote earnings that aren’t in Item 19 create liability for the whole system. Decide your Item 19 policy and train to it.

Keep Items 5, 6, and 7 consistent with the agreement. Every fee in the franchise agreement should map to a disclosed fee. Undisclosed or vaguely disclosed charges are a recurring source of disputes, and the FTC signaled in 2024 that it views fees imposed on franchisees that were not adequately disclosed as a serious problem.

Match Item 20 and Item 21 to reality. Outlet counts, the list of current and former franchisees, and your audited financial statements all get checked. Inconsistencies between the narrative and the exhibits undermine the whole document.

Common mistakes to avoid

The errors that most often surface in disputes are familiar: copying a competitor’s FDD instead of disclosing your own facts; letting the FDD go stale past the 120-day annual deadline; making earnings claims outside Item 19; under-describing fees in Items 5 and 6; and treating state registration as an afterthought. Most are avoidable with a disciplined annual cycle and a single owner for FDD accuracy.

For how the agreement itself should be built, see what’s in a franchise agreement and how to set fees, royalties, and Item 19. When the document needs revising, see how to update your FDD and agreement. For the full picture of franchisor counsel, visit our franchise law page.

Frequently asked questions

How long is a typical FDD? There is no fixed length, but a complete FDD with exhibits commonly runs 100–200 pages. Length follows the content the 23 items require, not a target.

Do I have to include earnings figures in Item 19? No. Item 19 is optional. But if you or your representatives make any earnings claim, it must be in Item 19 and backed by a reasonable basis and written substantiation.

How often must I update the FDD? Annually, within 120 days of your fiscal year-end, plus interim revisions within a reasonable time after any quarter with a material change. Item 19 changes are disclosed when they occur.

Can I sell a franchise the day a prospect receives the FDD? No. The franchisee must have the FDD for at least 14 calendar days before signing a binding agreement or paying you anything.

Building or refining your franchise system? Reidel Law Firm drafts FDDs and franchise agreements for franchisors on a flat fee — trademark filings, entity structure, registration support, and plain-English guidance from a franchise attorney. Get flat-fee startup franchising counsel →