Definition:
Item 4 in a Franchise Disclosure Document (FDD) states if the franchisor—or anyone tied to the business—has filed for bankruptcy in the past 10 years. This includes the franchisor, parent companies, affiliates, or key people in leadership.
Use It in a Sentence:
Before joining, Natalie checked Item 4 in the Franchise Disclosure Document (FDD) to learn if the business had any bankruptcy history.
Why Is Item 4 Important?
Before investing in a franchise, you want to know the brand’s financial health. Item 4 helps with that. It shows if anyone behind the business has filed for bankruptcy recently. This can give you insight into how stable the company might be.
Bankruptcy doesn’t always mean something’s wrong today—but it’s still something to think about. A past filing could be due to many reasons, from a failed venture to unexpected economic changes.
For a franchise like CoolVu, this section helps you feel confident in your choice. If there’s no bankruptcy listed, that’s a good sign. If there is, you can ask questions and understand the story behind it. This helps you make a more informed, grounded decision.
So don’t skip this part. It’s short, but it matters. Item 4 gives you another tool to protect your investment and know exactly who you’re working with.
Related FDD Dictionary Terms:
- Franchise Disclosure Document (FDD) – Legal summary
- Item 1 in FDD: Identifies ownership, location, and business ties.
- Item 2 in FDD: Shows leadership experience behind the brand.
- Item 3 in FDD: Lists legal history and potential risks.
- Item 5 in FDD: Upfront startup fees listed.
- Item 6 in FDD: Lists ongoing fees for operating the franchise.
- Item 7 in FDD: Outlines estimated startup and operating costs.
- Item 8 in FDD: Lists supplier rules and product standards.
- Item 9 in FDD: Lists franchisee duties and responsibilities.
- Item 10 in FDD: Explains franchisor financing and loan options.
- Item 11 in FDD: Lists franchisor training, tools, and support.
- Item 12 in FDD: Explains territory rights and restrictions.
- Item 13 in FDD: Lists trademarks and legal protections.
- Item 14 in FDD: Covers patents, copyrights, proprietary info.
- Item 15 in FDD: Explains owner’s operational role.
- Item 16 in FDD: Lists what franchisees can sell.
- Item 17 in FDD: Renewal, transfer, & ending agreements rules.
- Item 18 in FDD: Shows public figures’ roles and ties.
- Item 19 in FDD: Shows sales numbers and earnings data.
- Item 20 in FDD: Tracks openings, closings, and transfers.
- Item 21 in FDD: Shows audited financial statements.
- Item 22 in FDD: Lists all required franchise contracts.
- Item 23 in FDD: Confirms receipt and starts 14-day wait.
