1851

When it comes to reading a Franchise Disclosure Document (FDD), perhaps the most important item to pay attention to is Item 19. Within the Item 19 is the potential earning claims, or Financial Performance Representation (FPR). &nbsp;

The format of an FPR and the types of earnings claims presented in the forms differ greatly from franchise to franchise.&nbsp; However, the information contained within the FPR contains specific levels of sales and profits at their locations.&nbsp; While it is not required to have an FPR, for those that do have it the law is clear on the accuracy required.

&ldquo;I find them very reliable. From the perspective of the franchisor, the law requires them to be accurate and not misleading,&rdquo; explained Adam Siegelheim, franchise attorney at <a href="http://www.stark-stark.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">Stark and Stark</a>.

While most franchisors elect to include an FPR in their Item 19, the section is not actually required by law.

&ldquo;It is not required to have an FPR, however, not having one may be seen as a red flag to prospective franchisees,&rdquo; said Brian Schnell, Chair of <a href="https://www.faegrebd.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">Faegre Baker Daniels</a> franchise practice. &ldquo;Those brands without an FPR are at a disadvantage because if others do have them, franchisees might go there instead. If you have a decent story to tell, then those numbers will help showcase the potential behind your franchise opportunity. It&rsquo;s difficult to build a strong relationship with a candidate throughout the sales process when you have to explain why you don&rsquo;t include earnings claims.&rdquo;

Aside from instilling trust in potential franchisees, an FPR can serve as protection for both parties entering into a franchise agreement.

&ldquo;In general, one of the advantages for both parties is that it lays out in writing certain data, which minimizes lawsuits in a way because it isn&rsquo;t hearsay. It serves as an incidental protective function,&rdquo; said Siegelheim.

In the event that a franchisor does not have an FPR, their sales process must be even more buttoned up.

&ldquo;Under franchise laws, if the franchisor does not include an FPR it may not provide FPR information in another medium. They can&rsquo;t say anything that relates to an actual performance representation,&rdquo; explained Richard Morey, partner at <a href="https://www.dlapiper.com/en/us/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-financial-performance-representations-and-their-legal-ramifications-2703154" target="_blank" rel="nofollow" target="_blank">DLA Piper</a>.&nbsp;

To gauge risks going forward, franchisors will require potential franchisees to fill out a questionnaire detailing the process.&nbsp; Generally, one of the questions will detail performance representations.

&ldquo;A questionnaire will help you eliminate a problem early in the process if the franchisee was provided with that illegal information,&rdquo; said Morey. &ldquo;It can get to be a very difficult situation to work through. But at least you know before the franchise agreement is signed.&rdquo;

If there is a violation involving an FPR, there are several ways that a franchisor will attempt to remedy the situation.

&ldquo;Remedies can include rescission, which is basically giving the franchisee their money back and putting them back to where they were before they made the investment decision. The remedies are severe and real,&quot; Schnell said.

However, with the rise in technology in recent years, franchisees are able to do extensive research into brands and the information found in FDDs. Technology also allows them to connect with experts much easier.

&quot;Do your due diligence, because in this day and age there is information available all around you. It&#39;s right at the tip of our fingers,&quot; explained Schnell. &quot;Also make sure you are talking to the franchisor and the existing franchisees to understand what it will take to get your business off the ground, and what it will take to be sustainable. By doing your homework and working with the right advisors, you&rsquo;ll be in a good position to succeed.&rdquo;

Understanding Financial Performance Representations and Their Legal Ramifications

1851 Franchise

While not required in Item 19 of the FDD, financial performance representation carries a lot of weight when it comes to potential franchisee trust and the law.

understanding-financial-performance-representations-and-their-legal-ramifications

Right at Home

Right at Home Marks 30 Years With Continued Franchise Growth

Right at Home Marks 30 Years With Continued Franchise Growth, Tech Advancements, and Strong System Engagement in First Half of 2025

right-at-home-franchise-growth-2025

KidStrong Franchising, LLC

Unlocking Superpowers: How KidStrong Is Building the Next Generation of Confident Kids — and Thriving Franchise Owners

kidstrong-franchise-confident-kids

Image of a kid growing up, developing with kidstrong, high fiving and smiling. 

How KidStrong has Become the Franchise Disrupting Child Development by Partnering with Purpose-Driven Franchise Owners 

kidstrong-franchise-opportunity-child-development

Picture of kids for franchise business Kidstrong which focuses on child development and fitness

KidStrong Is Pediatrician-Recommended for Raising Confident, Capable Kids and Families Can't Get Enough

kidstrong-child-development-program

Layne's Chicken Fingers

Layne's Chicken Fingers-QSR-Sandwich-Brand-Addition-June-2025

Why Sandwich Franchisees Are Expanding With Layne’s Chicken Fingers

laynes-chicken-fingers-franchise-sandwich-operator-expansion

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 Development Website Builder

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

Image of Donald Trump pointing with red stripes in the background

August 1 Tariff Deadline Is Said to Have ‘No Extensions’: What This Could Mean for Franchises

august-1-tariff-deadline-franchise-impact

What June’s Jobs Report Means for the Franchise Industry

what-junes-jobs-report-means-for-the-franchise-industry

Drone Delivery Takes Flight in QSR: The Future of Franchise Operations?

drone-delivery-takes-flight-in-qsr-the-future-of-franchise-operations

Chick-fil-A Tops Customer Satisfaction Rankings for 11th Year as Challenger Brands Gain Ground

chick-fil-a-tops-customer-satisfaction-rankings-for-11th-year-as-challenger-brands-gain-ground

Technomic Releases Annual Ranking of the Top 15 Fast-Food Chains in the U.S.

technomic-releases-annual-ranking-of-the-top-15-fast-food-chains-in-the-us

From Franchisee to Franchisor: How Howard Picker Is Using His Experience to Drive Sustainable Growth at Floyd’s 99

howard-picker-floyds-99-barbershop-franchise-franchisor-hot-seat

Jollibee -Launch-Story-Brand-Page-Deep-Dive-2025

Jollibee Franchise Costs, Fees, Profit and Data for 2025

jollibee-franchise-costs-fees-profit-and-data-for-2025

Bringing Robots to Main Street: How Elad Inbar’s RobotLAB Franchise Is Powering the Local AI Revolution

bringing-robots-to-main-street-how-elad-inbars-robotlab-franchise-is-powering-the-local-ai-revolution

HTeaO Franchise Costs, Fees, Profit and Data for 2025

franchise-deep-dive-hteaos-franchise-costs-fees-profit-and-data

The Ultimate Guide to Selling Franchises: How To Create a Strong Incentive

how-to-build-strong-incentives-to-attract-prospective-franchisees

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

How Vishal Juneja Turned a Family Tradition Into a Paris Baguette Franchise

How Vishal Juneja Turned a Family Tradition Into a Paris Baguette Franchise Built on Heart and Community

paris-baguette-franchise-rockaway-new-jersey-vishal-junjea

Franchisee spotlight graphic with photo of Ricki Oberoi and Layne's Chicken Fingers logo

Multi-Unit Wendy’s Operator Signs 12-Unit Deal With Layne’s Chicken Fingers

ricki-oberoi-laynes-chicken-fingers-growth

Franchisee spotlight graphic with photos of Danielle Rosemond & Usman Khan & TruBlue logo

Family Members of Local Physicians Bring TruBlue Franchise to North Central Nassau, Long Island: A Health Care-Inspired Approach to Aging in Place

family-brings-trublue-franchise-to-north-central-nassau

Top 25 Franchise Marketing Leaders: Kelsey McManemin — Vice President of Marketing, HTeaO

top-25-franchise-marketing-leaders-kelsey-mcmanemin-vice-president-of-marketing-hteao

Understanding Financial Performance Representations and Their Legal Ramifications

MORE STORIES LIKE THIS