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

Right at Home

Right at Home - Katung Aduwak - Franchisee Spotlight - 1851 Franchise

Katung Aduwak’s Journey of Purpose with Right at Home in Southern Seattle 

katung-aduwaks-journey-of-purpose-with-right-at-home-in-southern-seattle

Mathnasium

How Two Mathnasium Franchisees Turned Passion for Education Into a Thriving Business in Park City, Utah

how-two-mathnasium-franchisees-turned-passion-for-education-into-a-thriving-business-in-park-city-utah

Griswold

Griswold Closes Out 2024 with 21 New Franchises Awarded Across the U.S.

griswold-closes-out-2024-with-21-new-franchises-awarded-across-the-us

Harri

Quincy Valencia, Harri’s SVP of Innovation, on Empowering Frontline Workers Through Technology and Engagement

quincy-valencia-harris-svp-of-innovation-on-empowering-frontline-workers-through-technology-and-engagement

United Water Restoration Group

United Water Restoration Group Wraps up 2024 With Strong Growth and Innovative New Initiatives

united-water-restoration-group-wraps-up-2024-with-strong-growth-and-innovative-new-initiatives

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

Login

facebook

instagram

twitter

linkedin

youtube

I Heart Mac and Cheese - Franchisees Sue I Heart Mac and Cheese - Franchise News - 1851 Franchise

Restaurant Business Online: Franchisees Sue I Heart Mac and Cheese

restaurant-business-online-franchisees-sue-i-heart-mac-and-cheese

Consumer Sentiment Hits 8-Month High: What It Means for Franchises

consumer-sentiment-hits-8-month-high-what-it-means-for-franchises

Jersey Mike’s Hits 3,000 Locations Amid Unprecedented Growth

jersey-mikes-hits-3000-locations-amid-unprecedented-growth

Fast Company: KFC Introduces Spin Off Restaurant, Saucy

fast-company-kfc-introduces-spin-off-restaurant-saucy

Subway Seals the Deal: PepsiCo Beverages Coming to U.S. Locations in 2025

subway-seals-the-deal-pepsico-beverages-coming-to-us-locations-in-2025

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

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

Chick-fil-A Emerges as the Leader in the U.S. Chicken Chain Industry

chick-fil-a-emerges-as-the-leader-in-the-us-chicken-chain-industry

The Top 10 Dessert Franchises Santa Would Love

the-top-10-dessert-franchises-santa-would-love

100% Chiropractic's Mission to Transform Health Care Through Education and Wellness

100-chiropractics-mission-to-transform-health-care-through-education-and-wellness

The Top 25 Franchise Brands Santa Would Love for 2025

top-25-franchise-brands-santa-would-pick-for-the-nice-list

From Footwear to Senior Care: How a Pandemic Pivot Brought this Franchisee to Senior Care Authority 

from-footwear-to-senior-care-how-a-pandemic-pivot-brought-this-franchisee-to-senior-care-authority

How Diego Ruiz and Mauricio Blanco Are Growing Pollo Campero

From Family Business to Franchise Success: How Diego Ruiz and Mauricio Blanco Are Growing Pollo Campero

from-family-business-to-franchise-success-how-diego-ruiz-and-mauricio-blanco-are-growing-pollo-campero

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

MORE STORIES LIKE THIS