FDD Reference
The 23 Items of the Franchise Disclosure Document
The Franchise Disclosure Document is the federally-mandated 23-item disclosure every franchisor must deliver to a prospective franchisee at least 14 days before signing. Each item covers a specific category — corporate background, fees, financial performance, territory, contracts. This reference explains what each item discloses, why it matters, and what to look for during due diligence.
Item 1
Franchisor Background
FDD Item 1 discloses the franchisor's corporate identity — legal name, business form, principal address, predecessors, parents, and affiliates. It also describes the franchise being offered, the business operated by the franchisor and its predecessors, and the industry's regulatory and competitive context.
Item 2
Business Experience
FDD Item 2 lists the directors, officers, and other key executives of the franchisor, with each person's principal occupation and employers during the past five years. It identifies who is running the franchise system day-to-day.
Item 3
Litigation History
FDD Item 3 discloses pending and concluded litigation involving the franchisor, its predecessors, and certain executives over a defined lookback window. It covers civil, criminal, and material administrative actions.
Item 4
Bankruptcy History
FDD Item 4 discloses bankruptcy filings by the franchisor, its predecessors, parents, affiliates, or key executives over a defined lookback window (typically 10 years for entities, 7 for individuals).
Item 5
Initial Fees
FDD Item 5 discloses all initial fees the franchisee will pay to the franchisor or its affiliates before the franchise opens. This includes the initial franchise fee plus any other pre-opening fees.
Item 6
Ongoing Fees
FDD Item 6 discloses all recurring and contingent fees the franchisee will pay during the franchise relationship. Includes royalties, ad fund contributions, technology fees, training fees, transfer fees, renewal fees, and any other charges.
Item 7
Initial Investment
FDD Item 7 discloses the franchisee's estimated total investment to begin operating the franchise, broken out line-by-line, from initial franchise fee through pre-opening working capital. It's the full upfront cost picture.
Item 8
Supply Chain Restrictions
FDD Item 8 discloses any restrictions on where the franchisee can purchase products, services, supplies, or equipment. It identifies any franchisor-designated or approved suppliers, and any rebates the franchisor receives from those suppliers.
Item 9
Franchisee Obligations
FDD Item 9 is a cross-reference table that maps each major franchisee obligation to its corresponding section in the franchise agreement. It's the structural map of the franchisee's responsibilities.
Item 10
Franchisor Financing
FDD Item 10 discloses any financing arrangements the franchisor or its affiliates offer to franchisees. This includes direct financing of the initial fee, equipment, or other components of the investment, and any third-party programs the franchisor brokers or refers.
Item 11
Franchisor Obligations & Support
FDD Item 11 discloses what the franchisor will do for the franchisee — pre-opening assistance, ongoing operational support, advertising fund administration, required computer systems, and the training program structure.
Item 12
Territory Rights
FDD Item 12 discloses the territorial rights granted to the franchisee — whether the territory is exclusive, the methodology for defining it, any reservations of rights by the franchisor, and the franchisee's rights to operate or develop additional units.
Item 13
Trademarks
FDD Item 13 discloses the principal trademarks the franchisee will use, their registration status with the USPTO, any pending oppositions or litigation involving the trademarks, and any contractual obligations affecting trademark use.
Item 14
IP & Proprietary Info
FDD Item 14 discloses the patents, copyrights, trade secrets, and other proprietary information that are material to the franchise, including the franchisee's rights and restrictions regarding their use.
Item 15
Owner-Operator Requirement
FDD Item 15 discloses whether the franchisee (or, if a corporation, a designated owner) is required to personally participate in the operation of the franchise. If participation is required, the item specifies the nature and extent.
Item 16
Product & Service Restrictions
FDD Item 16 discloses restrictions on the goods and services the franchisee may offer, including any required offerings, prohibited products, customer restrictions, and obligations to offer only approved items.
Item 17
Renewal, Termination, Transfer
FDD Item 17 is a cross-reference table summarizing key franchise-agreement provisions: renewal terms, conditions of franchisor termination, conditions of franchisee termination, transfer rights, post-term obligations, and dispute resolution procedures.
Item 18
Public Figures
FDD Item 18 discloses any compensation paid to public figures (celebrities, athletes, influencers) who appear in promotional materials or endorse the franchise system, along with their level of involvement.
Item 19
Financial Performance (Item 19)
FDD Item 19 is the section where the franchisor MAY (but is not required to) disclose financial performance representations — revenue, unit economics, or earnings claims about existing units. If the franchisor includes Item 19, the data must have a reasonable basis.
Item 20
Unit Counts & Franchisee List
FDD Item 20 discloses unit-count data: total franchised and company-owned units, openings and closures over the past three years, projected openings, and contact information for every franchisee in the system.
Item 21
Audited Financial Statements
FDD Item 21 contains the franchisor's audited financial statements for the past three fiscal years — balance sheet, income statement, cash flow statement, and notes. The auditor's opinion is the most concrete signal of franchisor financial health in the entire FDD.
Item 22
Sample Contracts
FDD Item 22 attaches all contracts the franchisee will sign — the franchise agreement itself, plus any related contracts (lease addenda, supply agreements, software licenses, area development agreements). These are the actual binding documents.
Item 23
Receipt of FDD
FDD Item 23 is the signed receipt acknowledging the buyer received the FDD. The FTC Franchise Rule requires that the buyer receive the FDD at least 14 calendar days before signing any binding agreement or paying any money.