What Disclosures are Permitted and Allowed in a Franchise Disclosure Document

The Franchise Disclosure Document is a document designed by franchise industry professionals and the Federal Trade Commission.  The FDD originally was referred to as the UFOC and came into play in the 1970’s as a way to provide franchise investors with more information on the franchise investment and whether it could be a good or bad investment for the franchisee.

1. Where these disclosures belong in an FDD

All of the language you provided belongs in the Risk Factors section of the FDD (the section required by the FTC Franchise Rule that describes material risks associated with the franchise investment).

This section is designed to:

• Warn prospective franchisees of material, system-specific risks

• Reduce claims of misrepresentation

• Demonstrate good-faith disclosure by the franchisor

Your introductory paragraph is very close to textbook-acceptable language for this section.

2. Are these types of risks allowed in an FDD?

Yes. In fact, each category you listed is commonly expected in a modern FDD—especially for a health, wellness, or equipment-intensive franchise system.

Here’s how your list stacks up from a compliance standpoint:

Clearly appropriate and recommended

These are strong, defensible risk factors:

• Regulatory and compliance risk (especially medical/wellness modalities)

• Equipment-intensive operations and obsolescence

• Rising operating costs / inflation

• Local and regional economic conditions

• Market demand and industry trend risk

• Competition and market saturation

• Staffing, training, and labor risk

• Brand reputation, safety, and liability

• Real estate, build-out, and utility capacity

• Financial performance and liquidity

• Marketing and customer acquisition risk

These are:

• Material

• Fact-based

• Specific to your system

• Not misleading or speculative

From a regulator’s perspective, this is good disclosure hygiene.

3. The one area that needs adjustment: “Franchisee Due Diligence”

Here is a FTC- and state-defensible rewrite you can safely include in a FDD:

This:

• Encourages diligence

• Does not disclaim reliance

• Does not undermine FDD disclosures

• Is widely accepted by regulators

4. Best practices for including these risk factors

To stay fully compliant:

Keep risk factors:

• Fact-based, not hypothetical scare language

• Specific to your system, not boilerplate only

• Consistent with Items 7, 19, and 21

• Updated annually or upon material changes

Avoid:

• Waivers of reliance

• “No one told you anything” language

• Disclaimers that contradict Item 19

• Overly promotional tone in risk sections

5. Wellness-specific note (important for your brand)

Because the Franchise System involves:

• Specific Industry Compliance

• Necessary Permitting and Regulatory approval in order to operate the business

…it is especially appropriate (and protective) to include:

• Regulatory uncertainty

• Physician oversight risk

• Equipment safety

• Adverse reactions

• Public health directives

From a legal defense standpoint, your regulatory and safety disclosures are strong and appropriate.

6. Bottom line

The Franchise Disclosure Document (FDD) is a legally required disclosure designed to help prospective franchise buyers make an informed investment decision before purchasing a franchise. Mandated by the Federal Trade Commission (FTC), the FDD provides a standardized, detailed overview of the franchisor, the franchise system, and the risks, costs, and obligations associated with the franchise. It is organized into 23 specific items, covering topics such as the franchisor’s background and litigation history, initial and ongoing fees, estimated startup costs, territory rights, training and support, financial performance representations (if provided), and the franchisor’s audited financial statements. To understand the FDD, prospective franchisees should read it as a risk-and-obligations document rather than a marketing brochure, paying close attention to Items 5–7 (fees and investment), Items 19–21 (financial performance and financial condition), and the franchise agreement in Item 22, while comparing disclosures across brands and consulting legal and financial advisors before signing or paying any money.

For more information on the FDD and the 23 points of disclosure, read more here:

https://www.fmsfranchise.com/understand-franchise-disclosure-document-fdd/

To find a Franchise investment visit the FranchiseConduit Platform:  www.FranchiseConduit.com