What You’re Really Signing: FDD vs Franchise Agreement
One of the most common misconceptions among first-time franchisees is the belief that the Franchise Disclosure Document and the Franchise Agreement are the same. While both are essential components of the franchise buying process, they serve very different purposes and carry different legal implications. Understanding the distinction is crucial for anyone considering a franchise investment.
What Is the Franchise Disclosure Document?
The Franchise Disclosure Document, or FDD, is a legal document that franchisors are required to provide to prospective franchisees before a sale. Its purpose is to ensure transparency and protect potential investors by disclosing key information about the franchise system. The FDD includes 23 mandatory sections, known as “Items,” which outline details such as:
The history of the franchisor and its executives
Litigation and bankruptcy history
Initial fees and ongoing costs
Obligations of the franchisor and franchisee
Financial performance representations, if any
A list of current and former franchisees
Copies of important agreements
The FDD is a disclosure tool, not a contract. Its job is to inform, not to bind. Reviewing this document is the first step in evaluating whether a franchise opportunity is right for you.
What Is the Franchise Agreement?
The Franchise Agreement is the binding legal contract that governs the relationship between the franchisor and the franchisee. It sets out the exact terms and conditions under which the franchise will operate, including:
The length of the franchise term
Territory rights
Renewal conditions
Intellectual property use
Training and support obligations
Termination rights
Non-compete clauses
Once signed, the Franchise Agreement commits both parties to a legally enforceable relationship. Unlike the FDD, which outlines general disclosures, the Franchise Agreement spells out your actual rights and responsibilities.
Why Are the Two Often Confused?
Franchisees may confuse the FDD and the Franchise Agreement for a few reasons. First, the FDD includes a copy of the Franchise Agreement as one of its exhibits, making it easy to assume they are part of the same document. Second, the legal language and structure can feel overwhelming to the untrained eye, causing some prospective franchisees to skim rather than study the documents carefully. Finally, because many franchisors present the FDD during sales conversations, it may feel like just another piece of paperwork rather than a critical part of due diligence.
Timing Matters: The Required Waiting Period
Under the Federal Trade Commission’s Franchise Rule, franchisors must give a prospective franchisee the FDD at least 14 calendar days before the franchisee signs any agreement or pays any money. This includes signing the Franchise Agreement or paying a deposit or initial fee of any kind.
The rule is designed to give prospective franchisees time to review the material, consult with advisors, and conduct real due diligence without pressure. This period cannot be waived, shortened, or replaced with verbal disclosures. Violating this rule can result in legal penalties for the franchisor and opens the door for franchisees to challenge the enforceability of the agreement in court.
Real-World Examples of Violations
The 14-Day Required Waiting Period
This rule is not theoretical, it is enforceable and franchisors have already been cited for violating it. In March 2024, the California Department of Financial Protection and Innovation issued a Consent Order against I Heart Mac & Cheese and its executives for failing to provide a franchisee with a new FDD at least 14 days prior to the execution of a second franchise agreement. The state cited this as a direct violation of California’s franchise law.
In my own experience with I Heart Mac & Cheese, I was never provided a Franchise Disclosure Document when I received their Confidential Business Plan Summary on August 17, 2017, nor was it provided at my Discovery Day on September 1, 2017. I did not receive a FDD until October 13, 2017, when their attorney, Marci Adler (formerly Rubin), sent it to me broken up in four separate emails. At no point was I advised to wait 14 days or even told that a waiting period existed. I signed on October 17, 2017, just four days later; sealed, delivered, check cashed.
These are not harmless technicalities. The timing of disclosure directly impacts whether a franchisee has a fair opportunity to assess the risks involved. When franchisors push through documents without proper waiting periods, they not only break the law, they remove the chance for franchisees to make informed decisions.
Franchisee Incentive Denied: Coca-Cola Distances Itself
Franchisees of I Heart Mac & Cheese were led to believe, based on multiple years of FDD disclosures, that they would receive a $1,100 new store incentive from Coca-Cola. However, when they attempted to collect the incentive, Coca-Cola declined to issue the payment.
In a written communication provided to Franchise Reality Check™ by a former franchisee, Coca-Cola clarified that franchisees were not parties to any agreement with Coca-Cola and were therefore not entitled to the incentive directly. Coca-Cola confirmed that franchisees had not signed a contract nor were they eligible for payment under the terms of Coca-Cola’s agreement.
Instead, franchisees later discovered that the incentive payments were likely being issued to Giordanella Holdings, LLC, an entity owned by the franchisor’s CEO, rather than to the franchisees themselves. Because this financial arrangement was only mentioned in the FDD and never included in the binding Franchise Agreement, franchisees had little recourse to recover the funds they believed were promised to them.
This situation underscores a critical truth: just because something appears in the FDD does not make it legally binding. Unless the benefit is also included in the Franchise Agreement or executed in a separate contract, franchisees may find themselves without leverage to enforce it; even if the disclosure seemed clear at the time of purchase.
The Bottom Line
The Franchise Disclosure Document and the Franchise Agreement are not interchangeable. One is meant to inform, the other to bind. Recognizing the difference between the two and respecting the mandatory waiting period can be the difference between a sound investment and a devastating mistake.
Take your time, ask questions, and never sign anything or pay any fee until you have fully reviewed and understood both documents with the help of qualified professionals. Franchising may be a legal contract, but it is also a financial and emotional commitment; and you owe it to yourself to know exactly what you are getting into.
This information is based on publicly available documents, court filings, and franchisee submissions. Interpretations, observations, and conclusions drawn herein represent the informed opinions of Franchise Reality Check™and are intended to encourage deeper due diligence by prospective franchisees. This content should not be construed as legal, financial, or investment advice. Prospective investors should consult with a qualified franchise attorney and CPA before making any franchise purchase decisions.
