1851

The Franchise Disclosure Document (FDD) contains 23 categories, or items, and this article focuses on the second item. &ldquo;Item 2&rdquo; pertains to the background of the business. Item 2 describes &ldquo;the identity and business experience of key persons.&rdquo; However, this small statement contains many sub-questions. Who are key persons? What comprises an &ldquo;identity&rdquo;? What is business experience? It is experience related to business in general or to the business of the franchise in particular? What period of time is covered in the examination of the business background of keys persons?

Ardag Tachian, Area Developer of <a href="http://www.mooyahfranchise.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=how-to-read-a-franchise-disclosure-document-business-background-fdd-item-2-2703055" target="_blank" rel="nofollow" target="_blank">MOOYAH</a>, notes that &ldquo;There&rsquo;s a detailed explanation of the business experience of the company in Item 2. It blends right in from the description of the business and how long it has been around. It addresses the leadership&rsquo;s background, depth of experience, and so forth. Certainly with the leadership being listed, there is typically a brief biography that&rsquo;s required but a future franchisee can obviously search any of these individuals online to better understand their background...and have a deeper understanding of who the brand is.&rdquo;

The Compliance Guide of the FRANCHISE RULE 16 C.F.R. Part 436 offers further very specific guidance on who should be included in Item 2 and what kind of history should be provided:

It requires disclosure of the business experience of certain individuals &ndash; including directors and principal officers, among others &ndash; for the last five years. A longer period is acceptable if the prior experience is directly relevant to the franchises being offered for sale. &hellip;[F]ranchisors need not disclose information about the business experience of any broker that may be involved in sales of its franchises. Second, in addition to disclosing the business background of directors and principal officers, franchisors must disclose the business experience of any individuals &ndash; even if they do not have a formal title &ndash; who have management responsibility relating to the sale or operation of franchises offered by the disclosure document. It does not matter whether the individuals with management responsibility are employed by the franchisor, an affiliate, or by a parent company. As long as the individual actively manages the sale of franchises or the operation of franchises, that individual&rsquo;s business experience should be noted in the Item 2 disclosure. This does not mean that franchisors must disclose all managers. Rather, sales and operations managers, regardless of whether they have a formal title, should be disclosed if their involvement in either sales or operations is such that a prospective franchisee would rely on their expertise, formulation of policy, or control of the system in making an investment decision.

FTC.gov recommends that potential franchisees to pay attention to the key person&rsquo;s general business background, their experience in managing a franchise system and how long they&rsquo;ve been with the franchisor. &nbsp;

Tachian&nbsp;concludes that &ldquo;The leadership is the rudder going forward for the the brand. If someone is going to be investing hundreds of thousands of dollars in the business, they want to be comfortable with the leadership&rsquo;s team and if that leadership team has the foundation and experience to help them achieve their goals.&rdquo; &nbsp;With this information in mind,&nbsp;franchisors&nbsp;can better formulate Item 2 and franchisees can better interpret it.

Reference Sample Item 2 (From The&nbsp;FRANCHISE RULE 16 C.F.R. Part 436):

ITEM 2: BUSINESS EXPERIENCE President and Director: Jane J. Doe Ms. Doe became President of Belmont Mufflers, Inc., in June 2006. From May 2004 until June 2006, she served as our Vice President. From June 2000 until April 2004, Ms. Doe was Vice President of Atlas, Inc., a Houston, Texas, manufacturer of automobile wheels. Vice President: Henry Moore On July 1, 2006, Mr. Moore joined Belmont as Vice President. From January 2000 until July 2006, Mr. Moore served as a manager of Belmont Muffler Manufacturers, Inc. Franchise Coordinator: Philip E. Smith On January 1, 2006, Mr. Smith joined us as a franchise coordinator. From July 2001, until September 2005, Mr. Smith was a manager at Bishop W ash, Inc., a Denver, Colorado, manufacturer and distributor of car wash detergents. Manager of Franchise Development: Ann Howard Ms. Howard has managed franchise development at our parent company &ndash; CFT International, Inc., since 1995. She oversees the development of all franchise systems owned and operated by CFT International, including Belmont Mufflers, Inc.

&nbsp;

&nbsp;

&nbsp;

How to Read a Franchise Disclosure Document: Business Background (FDD Item 2)

1851 Franchise

Identity and Business Background of Key Persons

This brand page has been paid for by 1851. Content within this page that is paid will showcase a Sponsored icon. This means the brand has engaged 1851 FRANCHISE to write the content. Content without the Sponsored Icon is aggregated media placements the brand earned. Questions can be sent to editorial@1851franchise.com

how-to-read-a-franchise-disclosure-document-business-background-fdd-item-2

Strategic Franchising

Photo of a businessman, wearing glasses, smiling at the camera

Building Wealth Through Franchising: A Long-Term Investment

building-wealth-through-franchising-a-long-term-investment

Sola Salons

Headshot of Sharon Gates, who has long, blonde hair and is wearing a bright blue shirt

From Corporate to Community: How Sharon Gates Built a Thriving Sola Salons Franchise

sharon-gates-sola-salons-franchise

Melting Pot

Photo of Melting Pot fondue spread with cheese and chocolate, bread, meats and fruits

Crain’s Detroit Business: Fondue Restaurant Plans Michigan Expansion

melting-pot-michigan-expansion

Pigtails & Crewcuts

Why Pigtails & Crewcuts Is a Fulfilling Investment Providing Emotional ROI

why-pigtails-crewcuts-is-a-fulfilling-investment-providing-emotional-roi

Children's Lighthouse

Naples Press: How Children’s Lighthouse Is Addressing the Childcare Shortage in Naples, Florida

naples-press-how-childrens-lighthouse-is-addressing-the-childcare-shortage-in-naples-florida

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

Design with hundred dollar bill and orange "recession" banner across the middle

ABC News: Recession Risks Are Rising, Economists Say. Here’s What to Know.

recession-risks-impact-economy-franchise-world

NRA: Restaurants Focus On Enhancing In-Store Experiences To Attract Diners in 2025

nra-restaurants-focus-on-enhancing-in-store-experiences-to-attract-diners-in-2025

The Joint Chiropractic - Dr. Anthony Tran - IFA Franchisee of the Year - 1851 Franchise

The Joint Chiropractic’s Dr. Anthony Tran Named Franchisee of the Year by the IFA

joint-chiropractic-dr-anthony-tran-ifa

TruGolf - Hybrid Golf Franchise - Nexus Golf - 1851 Franchise

TruGolf Links Unveils Revolutionary Hybrid Golf Franchise Concept

trugolf-links-unveils-revolutionary-hybrid-golf-franchise-concept

Photo of a basket of chicken wings with dipping sauce and celery

RestaurantNews: Franchisees File Comprehensive Legal Complaint Against Hurricane AMT

restaurantnews-franchisees-file-comprehensive-legal-complaint-against-hurricane-amt

Paris Baguette Ranks Among Top Franchises on Entrepreneur’s Franchise 500® for 2025 - 1851 Franchise

Paris Baguette Ranks Among Top Franchises on Entrepreneur’s Franchise 500® for 2025

paris-baguette-ranks-among-top-franchises-on-entrepreneurs-franchise-500-for-2025

DOJ FTC Antitrust Guidelines - Franchise News - 1851 Franchise

DOJ and FTC Issue New Antitrust Guidelines with Implications for Franchising

doj-and-ftc-issue-new-antitrust-guidelines-with-implications-for-franchising

Taco Bell Joins the Beverage Boom With New Live Más Café Concept

taco-bell-joins-the-beverage-boom-with-new-live-mas-cafe-concept

Florida Franchisee Reflects on Success and Growth with Sylvan Learning

florida-franchisee-reflects-on-success-and-growth-with-sylvan-learning

Domonique Downing - Big Frog Franchise - Fayetteville, GA - 1851 Franchise

Coca-Cola Scientist Finds Path to Autonomy with Big Frog Franchise in Fayetteville, Georgia

big-frog-franchise-fayetteville-georgia

Franchisee spotlight featuring Ian and Dick Rydholm with gradient blue background and Sylvan logo

Ian and Dick Rydholm Celebrate 30 Years of Transforming Lives Through Sylvan Learning in El Paso, Texas

ian-and-dick-rydholm-celebrate-30-years-of-transforming-lives-through-sylvan

Franchisee spotlight image with Randy and Sandy Craft, Children's Lighthouse logo on blue background

How to Read a Franchise Disclosure Document: Business Background (FDD Item 2)

MORE STORIES LIKE THIS