CFC Franchise Due Diligence & Disclosure Documents Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFC Franchise Due Diligence & Disclosure Documents flashcards as text
How many calendar days before signing a franchise agreement or paying any money must a franchisor provide the FDD to a prospective franchisee under FTC rules?
Answer: 14 days
The FTC Franchise Rule requires franchisors to deliver the FDD at least 14 calendar days before any agreement is signed or money is paid.
How many items are contained in a standard FDD?
Answer: 21
The FDD is structured around 23 standardized items, each covering a specific aspect of the franchise offering.
Which FDD item lists all current and former franchisees, including their contact information?
Answer: Item 20
Item 20 of the FDD provides a list of current franchisee outlets and former franchisees who left the system in the prior fiscal year, including contact details.
What is the primary purpose of a franchisee validation call during due diligence?
Answer: To gather candid firsthand feedback from existing franchisees about their experience
Validation calls allow prospective franchisees to speak directly with current franchisees to gain unfiltered insights about franchisee satisfaction, support quality, and actual unit economics.
What does Item 12 of the FDD address?
Answer: Territory rights and exclusivity provisions
Item 12 discloses the franchisee's territory, including whether it is exclusive, protected, or subject to encroachment by other franchisees or company-owned units.
Which FDD item discloses any pending or prior litigation involving the franchisor or its principals?
Answer: Item 3
Item 3 of the FDD requires franchisors to disclose pending and historical litigation, including actions brought by franchisees, regulators, or third parties.