Documents to Start a Franchise
The documents to franchise your business include the franchise disclosure document (FDD), franchise agreement, operations manual, financial statements, and state specific registration applications. Below we discuss each franchise document in detail.
1. Franchise Disclosure Document
Before you can offer or sell a franchise you are required to issue and disclose a franchise disclosure document (FDD) to the individuals that you are offering your franchise to and who may eventually sign a franchise agreement and become your franchisee. The FDD is a legal document that includes 23 disclosure items that require the disclosure of specific information about you, your franchise offering, and the legal obligations between you and your franchisees. As a legal document the FDD must comply with the federal and state franchise laws and should be prepared by a franchise lawyer.
2. State Disclosure Documentation: Franchise Registration States
Depending on where you intend to offer and sell franchises, there are certain states known as the Franchise Registration States that have enacted their own franchise requirements and require special supplements to the FDD, prepare additional documents, and register your FDD with a local state administrator. The additional state documents include state specific amendments to your FDD and state specific FDD registration forms and disclosures. Many states follow a uniform franchise registration form process as published by the North American Securities Administrators Association (NASAA), including this list of state registration forms.
3. State Disclosure Documentation: Franchise Filing and Notice States
In addition to the registration forms needed for the franchise registration states discussed above, certain other states known as franchise filing states require that you file a form notifying the state that you will be selling franchises within the state or that you are claiming an exemption to local state business opportunity laws. Visit our interactive franchise registration map to learn more about the franchise registration and franchise filing states including state specific requirements.
4. Operations Manual
Not technically a legal document but equally important to your FDD is the confidential franchise operations manual. The operations manual is a confidential document that you will provide to your franchisee after he or she signs a franchise agreement. The operations manual will serve as the how-to guide for your franchisees and cover everything from your initial training program through the standards and requirements for the development and day to day operations of the franchised business. Operations manuals are intended to evolve and be supplemented over time as your system standards evolve and change over time. In the past operations manuals typically took the form of printed manuals but today they are evolving into digital cloud based documents that are interactive and include videos.
5. Financial Statements
Within your FDD you must include financial statements for your franchise company. If you are new to franchising and your franchise company is new then the financial statements will be limited to an opening balance sheet for your new franchise company. However, over time these financial statements must evolve into fully audited financial statements that include Statement of Operations, Balance Sheet, and Statement of Cash Flows.
Getting Started – Franchise the Right Way
To learn more about franchising your business, the documents involved and how we can help. Contact us at (718) 979-8688, live chat, or by email. Learn more about our fixed fee Franchise Launch Program that combines legal representation + franchise development know-how to help you franchise the right way.