The federal regulation that defines what counts as a franchise and requires every franchisor to deliver a Franchise Disclosure Document (FDD) to prospects at least 14 days before signing.
The FTC Franchise Rule, codified at 16 CFR Part 436, is the federal regulation that governs franchise sales across the United States. Adopted in its modern form in 2007, the rule standardized franchise disclosure across all U.S. jurisdictions.
The rule defines a "franchise" as any commercial relationship that combines three elements: (1) a trademark license, (2) significant control or assistance from the franchisor, and (3) a required fee paid by the franchisee. If your business arrangement includes all three, the FTC Rule applies — regardless of what you call the arrangement.
Compliance has two parts. First, prepare a current FDD covering all 23 mandatory disclosure items. Second, deliver the FDD to every prospect at least 14 calendar days before they sign the franchise agreement or pay any money. Failure to deliver an FDD or providing materially false disclosures carries federal civil penalties and exposes the franchisor to private rescission claims by franchisees.
State franchise laws layer additional requirements on top of the federal rule, particularly in the 14 registration states that require pre-sale FDD filing with a state regulator.
“If your offer combines a trademark, operational control, and a fee, you're a franchise — even if your contract calls itself a 'license.' The FTC doesn't care what you call it.”— Jason Stowe, Founder
Thirty minutes with a franchise SME who's built systems for 30 years. We'll look at your specific situation and tell you what's realistic — without the pitch.
Book a 30-min strategy callA federally required legal document that a franchisor must give to every prospective franchisee at least 14 calendar days before signing — disclosing 23 specific items about the franchise system, fees, and obligations.
One of 14 U.S. states that requires franchisors to file the FDD with a state regulator and obtain approval before offering or selling franchises in that state.
A state statute that governs post-sale franchisor-franchisee dynamics — typically requiring good cause for termination, providing extended cure rights, or restricting non-renewal — without requiring pre-sale FDD registration.