Definition:
Item 3 in a Franchise Disclosure Document (FDD) covers any legal trouble the franchisor or its key people have been involved in. This includes lawsuits or other legal issues from the past. It may also mention the franchisor’s parent company or affiliates if they’ve faced similar situations.
Use It in a Sentence:
Before buying in, Marcus read Item 3 in the Franchise Disclosure Document (FDD) to check CoolVu’s legal track record.
Why Is Item 3 Important?
No one likes surprises—especially when starting a business. Item 3 in the FDD lays out any legal risks tied to the brand. It shows if the franchisor faced lawsuits or deals with ongoing disputes. This lets you review the facts and judge the risks before you invest.
If several franchisees sued the franchisor, you may spot problems with support or contracts. That’s a red flag. On the other hand, if the franchisor has a clean record, that builds trust and confidence.
When you read this section, you see how the company handles legal and business matters. Even if a lawsuit happened, the response tells you a lot about how the company operates.
Item 3 gives you the facts you need to make a smart decision. It doesn’t scare you away—it helps you understand the full story so you can move forward with confidence.
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 4 in FDD: Discloses past bankruptcies for review.
- 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.
