Items Five – Seventeen of the Federal Disclosure Document

Items five through seven concern fees and the initial investment costs.¹ Item seven is the estimated initial investment; in the case that the amount of payment is unknown (e.g., real estate costs) the franchisor may give a low-high range based on their experience.² Item eight is the restriction on sources of products and services.³ In addition to stating what suppliers are allowed, the franchisor must disclose any ownership interest in a supplier, revenue derived from a supplier, and any benefits the franchisor receives from franchisee purchases from the supplier.⁴ This way, an investor can be aware if the franchisor receives any kickbacks from the suppliers. Item nine lists the franchisees obligations.⁵ This item requires the franchisor to put into a chart the location of each of the obligations of the franchisor that can be found in the franchise agreement, making it more accessible for the investor. Item ten lists the financing options that the franchisor offers to the franchisees.⁶  Items eleven through seventeen are a reiteration of the information available in the franchise agreement, only in a more accessible format. This includes the franchisor’s obligations,⁷ training program,⁸ the territory of the franchisee,⁹ the obligation for the franchisee to personally participate in the operation of the franchise,¹⁰ and restrictions on what the franchisee may sell.¹¹ The franchisor must also disclose information, including litigation, regarding the trademark,¹² patents, copyright, and proprietary information.¹³ It is advisable to see whether there are any lawsuits, pending or otherwise, on the franchisors IP. It is unwise to invest in a franchise system if the IP of the franchise is at risk of being damaged or lost entirely.