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Does an Unclear FDD Indicate a Possible Disguised Franchise?

If you've recently decided to buy a franchise and are ready to start the process to owning your own business, then you are probably aware of the fact that one of the first documents that a franchisor should give you is a disclosure document. Required by the Federal Trade Commission, a Franchise Disclosure Document is supposed to provide a franchisee with important information about the franchise, including everything from the business model, to profits, to any pending litigation.

Because of the complexity of franchise law -- a fact our more frequent D.C. readers are well aware of -- an FDD should be prepared by a lawyer that has considerable experience with and understanding of franchise law. The reason for this is to guarantee that each party is in compliance with the law and has the appropriate protections in the event of litigation.

It is important to point out, however, that the wording of an FDD isn't always clear. In some cases, this may occur because the lawyer who is helping to draft the document is ill-equipped at turning legal language into something easily understood by the average person. In other situations the language might be unclear or intentionally vague because it might be a disguised franchise.

Although an unclear or poorly worded FDD isn't always an indication that you are dealing with a disguised franchise, this is something you may want to keep in mind and talk with your attorney about. Because of their understanding of the law and the fact that they want what's best for you, a lawyer can help you determine if buying a franchise is the right option or if it could lead to litigation later on.


Source: Entrepreneur, "How to Read a Franchise Disclosure Document," Julie Bennett, Dec. 20, 2011

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About Mario Herman

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Based in Washington D.C, franchisee attorney Mario Herman represents franchisees domestically and internationally in negotiation, mediation, arbitration, and litigation with their franchisors. Mr. Herman affiliates with local counsel on an as needed basis. He has practiced nationally and internationally for twenty five years, has an excellent reputation, and has very reasonable rates.

Mario Herman's column is syndicated to Blue MauMau by permission of the author. His insights and information are also available at franchise-law, and International Franchise Law.

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Franchise Operations