Fdd items 1 through 23 — The Franchise Disclosure Document (FDD) is the 23-item legal document every franchisor must give a prospective franchisee at least 14 days before any binding agreement is signed. This guide walks each item in plain English so you know what to look for, what to ask, and how to read the disclosures alongside an attorney.
Jump to an item
- Item 1 — The Franchisor and Affiliates
- Item 2 — Business Experience
- Item 3 — Litigation
- Item 4 — Bankruptcy
- Item 5 — Initial Fees
- Item 6 — Other Fees
- Item 7 — Estimated Initial Investment
- Item 8 — Restrictions on Sources of Products and Services
- Item 9 — Franchisee's Obligations
- Item 10 — Financing
- Item 11 — Franchisor's Assistance, Advertising, Computer Systems, and Training
- Item 12 — Territory
- Item 13 — Trademarks
- Item 14 — Patents, Copyrights, and Proprietary Information
- Item 15 — Obligation to Participate in the Actual Operation of the Franchise Business
- Item 16 — Restrictions on What the Franchisee May Sell
- Item 17 — Renewal, Termination, Transfer, and Dispute Resolution
- Item 18 — Public Figures
- Item 19 — Financial Performance Representations
- Item 20 — Outlets and Franchisee Information
- Item 21 — Financial Statements
- Item 22 — Contracts
- Item 23 — Receipt
Item 1 — The Franchisor and Affiliates
Item 1 introduces who you are buying from. It lists the franchisor entity (Polar Tint LLC), its parents, predecessors, affiliates (Glacier Manufacturing, Frostbite Marketing), and the franchise system's general business history. The point: prove to a prospect that the franchisor is a real, identifiable business with operational history.
What Item 1 covers
Legal name of the franchisor and any parents, predecessors, and affiliates.
A short narrative of the franchise system’s history — when it started, how it grew, what business it operates.
A description of the business the franchisee will operate.
Prior business experience of the franchisor in the same industry.
Why it matters
You’re entering a multi-year contractual relationship. Item 1 is where you confirm the franchisor isn’t a brand-new shell with no operating history. A franchise system whose parent has operated stores in the same category for years is materially different from one whose parent just spun up the brand to sell franchises.
Item 2 — Business Experience
Item 2 names every officer, director, and management-level employee with material franchise responsibility and lists their last five years of business experience. This is where you check that the people running the system have real experience in the business they're selling.
What Item 2 covers
Each principal officer of the franchisor by name and title.
Each person’s past five years of relevant business experience.
Names of any related entities they’ve also worked for.
Why it matters
You’re paying for management expertise. Item 2 lets you confirm the franchise was built by people who have actually operated the business, not just sold the franchise. A franchise whose leadership team has multi-year operating history in the industry is more likely to deliver real operational support post-signing.
Item 3 — Litigation
Item 3 discloses pending and recent litigation involving the franchisor and key executives. This includes lawsuits initiated by current or former franchisees, actions by regulators, and certain criminal matters. Item 3 is one of the most-skipped sections of an FDD but one of the most informative.
What Item 3 covers
Any pending lawsuits between the franchisor and current or former franchisees relating to the franchise relationship.
Material litigation in the past 10 years.
Material regulatory actions or criminal matters involving the franchisor or named executives.
A “no material litigation” statement if none applies.
Why it matters
A pattern of franchisee litigation against a franchisor is a serious red flag. Read Item 3 carefully and ask the development team about anything listed. The absence of litigation isn’t a guarantee of quality, but a pattern of disputes typically signals operating problems the franchise system hasn’t solved.
Item 4 — Bankruptcy
Item 4 discloses bankruptcy filings by the franchisor, predecessors, parents, affiliates, and named officers in the past 10 years. Like Item 3, it's a short section but it carries weight when the answer isn't "none."
What Item 4 covers
Bankruptcy filings by the franchisor, its parents, predecessors, and affiliates in the past 10 years.
Bankruptcy filings by Item 2 named executives in the past 10 years.
A “none” statement if no such filings exist.
Why it matters
A franchisor or affiliate bankruptcy in the past 10 years doesn’t automatically disqualify a franchise system, but it materially affects how a prudent franchisee should approach the deal. Read Item 4 alongside Item 21 (audited financial statements) to understand the franchisor’s current financial position.
Item 5 — Initial Fees
Item 5 itemizes every fee the franchisee pays before opening. This is the section where you find the initial franchise fee, conversion fee (if applicable), any training fee, opening inventory minimums charged to the franchisee, and any other upfront cost paid to the franchisor or its affiliates.
What Item 5 covers
Initial franchise fee — the upfront payment for the right to operate under the brand.
Any conversion-shop fee (typically discounted vs the standard initial fee).
Veteran or first-responder discounts.
Additional-unit fees for franchisees buying more than one territory.
Whether any portion is refundable and under what circumstances.
Why it matters
Item 5 is the start of your investment analysis. The fee structure tells you how the franchisor is positioned in the market — aggressively-priced systems often have higher royalty drag elsewhere; low-fee systems sometimes fund the front-end via tighter operational requirements later.
Item 6 — Other Fees
Item 6 lists every recurring or contingent fee the franchisee pays after opening — royalty, brand fund, technology fee, marketing minimums, transfer fee, renewal fee, audit fee, and so on. This is the longest fee section because it covers fees that recur for the life of the franchise.
What Item 6 covers
Royalty — expressed as a percentage of gross sales, with frequency (weekly, monthly).
Brand fund / national marketing contribution.
Technology fee for POS, CRM, and integration systems.
Local marketing minimum spend.
Audit, late, and default fees.
Renewal, transfer, and successor fees.
Why it matters
Royalty + brand fund is the biggest line in Item 6. Multiply the combined percentage by your projected gross to estimate your annual royalty drag. Compare across multiple franchise systems on a per-dollar-of-revenue basis, not just as standalone percentages.
Item 7 — Estimated Initial Investment
Item 7 is the table that ranges your total all-in startup cost. It includes the initial franchise fee, build-out, equipment, opening inventory, training travel, insurance, professional fees, and a working-capital reserve. Item 7 is where most prospects start their financial planning.
What Item 7 covers
Initial franchise fee (from Item 5).
Build-out and signage cost ranges.
Equipment, furniture, and fixtures.
Opening inventory minimums.
Training-related travel and lodging.
Insurance, professional fees, permits.
Three months of working capital (typical standard).
Why it matters
Item 7 ranges are real ranges, not guarantees. The low end typically reflects a converting shop in a low-cost market; the high end reflects a ground-up build in a high-cost market with maximum optional upgrades. Plan to the midpoint at minimum, then add 10–15% buffer for unexpected costs.
Item 8 — Restrictions on Sources of Products and Services
Item 8 explains where you have to buy supplies from. Some franchisors require buying from a single approved supplier; others maintain a wider approved-supplier list; still others let franchisees source independently within brand standards.
What Item 8 covers
Any requirement to purchase products, services, or supplies from designated suppliers (including the franchisor or affiliates).
How the franchisor approves new suppliers.
Whether the franchisor or affiliates receive rebates from approved suppliers (a “kickback” disclosure).
Items the franchisee must purchase from the franchisor specifically.
Why it matters
When the franchisor IS the supplier (parent-supplier model), Item 8 is where that’s disclosed. This can be a structural cost advantage if the franchisor passes through manufacturer-direct pricing; it can be a structural cost penalty if the franchisor marks up against market.
Item 9 — Franchisee's Obligations
Item 9 is a cross-reference table pointing to every section of the franchise agreement and operations manual where the franchisee has a specific obligation. It's less a substantive section and more a roadmap for the franchisee's lawyer.
What Item 9 covers
A table listing every franchisee obligation (site selection, training, fees, advertising, records and reports, inspections, brand standards, etc.) and the exact section of the franchise agreement or manual where that obligation is detailed.
Why it matters
Item 9 is the navigation table for the franchise agreement. Use it (and your franchise lawyer) to find every clause that imposes a duty on you before you sign.
Item 10 — Financing
Item 10 discloses whether the franchisor or affiliates offer financing to franchisees. Many franchisors don't offer direct financing and Item 10 simply states that — pointing franchisees toward SBA loans or independent lenders.
What Item 10 covers
Any direct franchisor financing of the initial franchise fee, build-out, or equipment.
Terms and conditions of franchisor financing (interest rate, term, collateral, personal guarantees).
A “we do not offer financing” statement if the franchisor doesn’t.
Why it matters
Most prospects finance through SBA 7(a) loans rather than franchisor-direct financing. Check Item 10 to confirm your understanding. Being on the SBA Franchise Directory (separate from Item 10) is generally a stronger positive signal than franchisor-direct financing.
Item 11 — Franchisor's Assistance, Advertising, Computer Systems, and Training
Item 11 is one of the longest sections of the FDD. It lays out everything the franchisor will do for the franchisee — site selection support, pre-opening assistance, training, ongoing operational support, marketing programs, required computer systems, and the operations manual.
What Item 11 covers
Pre-opening assistance (site selection, lease review, build-out, equipment, training).
Training programs (location, length, who must attend, what’s covered).
Ongoing support (field visits, conferences, marketing).
Advertising programs and brand fund use restrictions.
Required computer systems and any data the franchisor receives.
The operations manual table of contents.
Why it matters
Item 11 is your service-level agreement from the franchisor. Compare across franchise systems — some Item 11s promise quarterly field visits and dedicated marketing creative; others promise an email address and an annual conference. The difference materially affects what you’re actually buying.
Item 12 — Territory
Item 12 defines the franchisee's territory and what rights (if any) you have within it. This is one of the most heavily-negotiated and most-misunderstood sections of any FDD.
What Item 12 covers
How the territory is defined (radius, metro area, zip codes, customer count).
Whether the franchisor or affiliates may operate competing units inside your territory.
Whether the franchisor may sell directly to customers inside your territory (e.g., via national fleet contracts).
Whether you have any expansion rights into adjacent territories.
Conditions under which your territory may be reduced.
Why it matters
Territory definition is the single most consequential clause in many franchise agreements. Zip-coded territories are unambiguous and mappable; radius territories have fuzzy edges; metro-defined territories are broad and contested. Read Item 12 word-for-word and confirm with your attorney that the definition matches your expectation.
Item 13 — Trademarks
Item 13 lists the trademarks, service marks, and trade names the franchisee may use under the agreement — and any limitations on that use.
What Item 13 covers
The principal trademarks the franchisee will use.
Federal registration status of each mark.
Any pending or material trademark litigation.
Limitations on the franchisee’s use of the marks.
Why it matters
You’re buying brand goodwill. If the franchisor’s trademarks aren’t federally registered or are subject to material disputes, the brand asset you’re paying for is weaker than it appears.
Item 14 — Patents, Copyrights, and Proprietary Information
Item 14 covers any patents, copyrights, or trade secrets the franchisor licenses to the franchisee. For most service-industry franchises this section is short; for tech-heavy concepts it can be substantial.
What Item 14 covers
Patents and copyrights material to the franchise system.
Trade-secret protections.
Any pending or material IP litigation.
Why it matters
Most service franchises don’t have material patents. The disclosure is generally a one-paragraph statement that copyrighted manuals and trade-secret operational know-how are licensed for franchisee use.
Item 15 — Obligation to Participate in the Actual Operation of the Franchise Business
Item 15 discloses whether you (the franchisee, personally) have to work in the business or whether absentee ownership is allowed.
What Item 15 covers
Whether the franchisee must personally manage the business day-to-day.
Whether a designated manager (employed by the franchisee) may substitute.
Training and qualification requirements for any substitute manager.
Why it matters
Owner-operator franchises and absentee-investment franchises are different businesses. Item 15 tells you which one this is. Don’t buy an owner-operator franchise expecting to manage it from another state.
Item 16 — Restrictions on What the Franchisee May Sell
Item 16 limits what products and services the franchisee may offer. Most franchises restrict you to the system's approved menu of products and services; some allow branded ancillary offerings.
What Item 16 covers
The required products and services the franchisee must offer.
Any optional products or services.
Prohibited products or services.
How the franchisor may modify the approved offerings list over time.
Why it matters
Restrictions on what you can sell define your competitive position. A franchise that restricts you to a tight service menu protects the brand consistency but limits your ability to chase ancillary revenue.
Item 17 — Renewal, Termination, Transfer, and Dispute Resolution
Item 17 is the death-and-divorce section of the FDD. It explains how the franchise relationship ends, how disputes get resolved, what happens at renewal, and what conditions trigger franchisor termination.
What Item 17 covers
Initial term length and renewal terms.
Conditions under which the franchisor may terminate the franchise agreement.
Conditions under which the franchisee may terminate.
Transfer rights (selling the franchise) and any franchisor right of first refusal.
Post-termination obligations — non-compete, confidentiality, return of materials.
Dispute resolution — arbitration, venue, governing law.
Why it matters
Item 17 reads as legalese but it’s where the most-disputed terms live. Have your franchise attorney walk you through every line of this section. The non-compete clause, the post-termination obligations, and the dispute-resolution venue clauses are where outcomes get decided when a relationship breaks down.
Item 18 — Public Figures
Item 18 discloses any public figure (celebrity endorser, etc.) involved in the franchise system and discloses how they're compensated.
What Item 18 covers
The name of any public figure compensated by the franchisor for endorsement or other use of their name.
How they’re compensated.
Their level of involvement in the franchise system.
Why it matters
Most B2B franchise systems have no Item 18 disclosure. When a celebrity endorser is listed, ask the development team how their involvement is meant to translate into franchisee value.
Item 19 — Financial Performance Representations
Item 19 is the optional section where the franchisor may (or may not) disclose actual unit-level financial performance. Many franchisors leave it blank. Polar Tint discloses gross sales, COGS, and gross profit for the affiliate-owned shops — figures are delivered with the standard FDD package after the prequalification call.
What Item 19 covers
Any actual financial performance information the franchisor chooses to disclose — gross sales, gross profit, ticket averages, etc.
The specific population of units used (e.g., “top 25%,” “open at least 24 months”).
The reporting period covered.
Substantiation that the franchisor must make available on request.
Why it matters
Item 19 is optional. Many franchisors disclose nothing. When a franchisor does disclose, read the substantiation language carefully — “top performing 25%” is not the same as “all units.”
How Polar Tint approaches Item 19
Polar Tint discloses gross sales, COGS, and gross profit for the affiliate-owned Polar Tint shops in Las Vegas (Summerlin and Henderson). The actual figures are delivered as part of the standard FDD package after the prequalification call — not published on this website. Federal rule requires a 14-day review window before any binding action.
Item 20 — Outlets and Franchisee Information
Item 20 is the franchise system's growth-and-attrition report. It tables openings, closings, transfers, terminations, and non-renewals for the past three fiscal years — for both franchised units and company-owned units — plus the contact list for current and former franchisees.
What Item 20 covers
Number of franchised outlets opened, closed, transferred, terminated, or not renewed in each of the last three years.
Number of company-owned outlets opened or closed in each of the last three years.
Names and contact information for all current franchisees.
Names and contact information for franchisees who left the system in the past year.
Why it matters
Item 20 attrition trends are one of the highest-signal data points in any FDD. Call former franchisees from the Item 20 list. Their experience — positive or negative — is the most direct evidence you’ll get about what operating in the system is actually like.
Item 21 — Financial Statements
Item 21 contains the franchisor's audited financial statements for the past three fiscal years — balance sheet, income statement, cash-flow statement. Audited by an independent CPA.
What Item 21 covers
Three years of audited financial statements (balance sheets, income statements, cash-flow statements).
CPA opinion on those statements.
For franchisors guaranteed by a parent, statements of the guarantor.
Why it matters
Item 21 tells you whether the franchisor has the financial strength to support you for the life of your franchise agreement. A franchisor with negative net worth or persistent operating losses is a risk — you may not get the support you’re paying for. Read Item 21 with your CPA.
Item 22 — Contracts
Item 22 attaches every contract the franchisee will sign — the franchise agreement itself, any related agreements (technology license, supplier agreement, etc.), and any state addendums.
What Item 22 covers
The full franchise agreement.
Any related side agreements.
Lease addendums, technology licenses, advertising fund agreements, supplier agreements, and so on.
State-specific addendums where applicable.
Why it matters
Item 22 is the binding legal text. The body of the FDD summarizes obligations; Item 22’s contracts are what you actually sign. Have a franchise attorney read every word.
Item 23 — Receipt
Item 23 is the FTC-required disclosure-receipt acknowledgment — the page where the franchisee signs that they received the FDD on a specific date and acknowledges the federally-mandated 14-day review period before signing any binding agreement.
What Item 23 covers
A receipt page the franchisee signs and dates upon receiving the FDD.
Acknowledgment of the 14-day review period required by the FTC franchise rule before any binding agreement may be signed.
A second receipt the franchisor keeps as evidence of FDD delivery.
Why it matters
Item 23 starts your 14-day clock. From the date you sign the receipt, federal law requires at least 14 calendar days before you can sign a franchise agreement or pay any money. Use those 14 days to read every section of the FDD, talk to franchise-experienced counsel, and call current and former franchisees from the Item 20 list.