Franchise Your Business

Addenda (Addendum): An addendum is a legal document that is signed at the same time as the franchise agreement that amends the franchise agreement. It is commonly used when a franchisee has negotiated changes to a franchise agreement. Addenda is the plural of addendum.

Affiliate: In the franchise context, this means an “entity controlled by, controlling, or under common control with, another entity.”  Put another way, if you own a majority of one entity (51%) and a majority of another entity (51%), these two entities would be affiliates.

Amendment: An amendment is a legal document that is signed after, and amends, the franchise agreement.

Area Developer/Multi-Unit Operator: A franchisee that is granted the right to open and operate multiple franchises, generally within a designated geographic area.

Area Representative (formerly called regional developer, regional director, master franchisee): A franchisee that has the right to solicit or recruit third parties to enter into franchise agreements with the franchisor and/or to provide support services to third parties entering into franchise agreements with the franchisor.

Brand Fund/ National Fund/ Advertising Fund: This is an account set up and maintained by the franchisor that uses ongoing franchisee contributions to promote the franchise system and the franchise brand.

Comment Letters: These are written comments issued by state regulators requesting information or changes to the FDD or FA prior to registering the franchise offering in that state.

Effective Date: This is the date when an FDD is registered in a registration state. The FDD has to be registered in the registrations states each year and will have a new effective date each year (see Registration States).

Expiration: When a franchise agreement ends at the end of the franchise term (usually as a result of non-renewal).

FA: The Franchise Agreement. This is the legal contract that governs the franchise relationship.

FDD: The Franchise Disclosure Document. It is an informational document that gives information about the franchise, franchise investment and the franchise agreement (see What is an FDD).

Financial Assurance: (Fee deferral, escrow account, guaranty of performance, surety bond) a requirement that a registration state may impose on a franchisor with poor financial statements (see Franchise Financial Assurance Options).

Financial performance representation, FPR, Earnings Claim, Item 19: These terms are all used interchangeably to refer to the financial information that is provided about the franchised information.  It is supposed to help with the question “how much money can I make?”

Franchise Broker: An independent salesperson not employed by the franchisor that solicits prospective franchisees to purchase a franchise and receives a fee or commission from the franchisor on the sale of the franchise.

Issuance Date: This is the date that the FDD is live and ready to be used to offer and sell franchises. It is the FDD’s “birthday.” The FDD has to be updated each year and will have a new issuance date each year.

Parent: This is an entity that directly or indirectly controls another entity.

Predecessor: This is the franchisor that sold the franchise system to the current franchisor.

Prospect or Franchise Prospect: This is the person who is interested in potentially purchasing a franchise.

Termination: When a franchise agreement ends prematurely (usually as a result of a default).

Territory: This is the designated area that is given for the franchised business.

Transfer: The process where a franchisee sells their franchise.

Transferee: The purchaser of a franchise business in a transfer.

Transferor: The seller of a franchise business in a transfer.

Zee, Franchisee:  This is the buyer and operator of the franchised business.

Zor, Franchisor: This is the seller and supporter of the franchised business.