Multistate and “Roll-up” FDDs

The Problem

Franchisors know the headache caused by having to maintain different Franchise Disclosure Documents for different states.  If you are selling your franchise in registration states, there’s a strong chance you’ve received comment letters from state examiners.  There’s also a strong chance that different state examiners have required you to make different changes all over your FDD.

This is typical – there’s no real uniformity across the registration states.  Then, you find yourself having a “Maryland-specific FDD” and an “Illinois-specific FDD” and so forth.  This can cause potential issues for your sales team, and you could even run afoul of the federal state and disclosure laws.

The Solution

Luckily, there’s a solution to the problem of multiple FDD revisions.  Years ago, franchisors used to maintain different FDDs for different states, but the recent trend is to use a “Multistate” or “Roll-up” FDD.  It’s a simple concept.  Instead of making all of an individual state’s required revisions in-line within the FDD, the changes are made in state-specific addenda.  For instance, if Illinois requires you to add a risk factor, you can add that risk factor at the bottom of the FDD as part of an “Illinois Addendum.”

This works for both the FDD and Franchise Agreement, and you can have multiple state addenda included at the end of your FDD.  This way, your sales team only has to keep track of one disclosure document, and there’s much less of a chance that they will run afoul of the disclosure laws.  The only instance in which this doesn’t work well is if a particular state requires you to make a major overhaul of your FDD.  However, if they’re going to require such a severe revision, they’ll most likely deny your registration!