CFC Franchise Due Diligence & Disclosure Documents Flashcards
6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFC Franchise Due Diligence & Disclosure Documents flashcards as text
What is a 'franchise resale' and how does it differ from a new franchise unit?
Answer: A resale involves buying an existing franchisee's operational unit; a new unit is built and opened from scratch
A franchise resale involves purchasing an already-operating franchisee's business, often with existing customers and cash flow, while a new unit requires building out a location from scratch.
Which FDD item outlines the franchisee's obligations, including required training, reporting, and operating standards?
Answer: Item 9
Item 9 of the FDD details the franchisee's principal obligations, summarizing key duties tied to specific sections of the franchise agreement.
What does the 'transfer fee' in a franchise agreement typically cover?
Answer: A fee paid to the franchisor when the franchisee sells the business to a new owner
A transfer fee is charged by the franchisor when an existing franchisee sells or transfers ownership of the franchise unit to a new buyer, compensating the franchisor for approving and onboarding the new owner.
Why is it important for a CFC to verify a franchisor's franchisee satisfaction through independent validation rather than only relying on franchisor-provided references?
Answer: Franchisor-selected references are likely to be their most satisfied franchisees and may not represent the broader experience
Franchisors naturally provide references from their most satisfied and successful franchisees, so independently contacting franchisees from the Item 20 list provides a more balanced and realistic picture.
What is 'discovery day' in the franchise sales process?
Answer: An invitation for qualified franchise candidates to visit the franchisor's headquarters and meet the leadership team
Discovery Day is typically the final step before signing, where serious candidates visit the franchisor's headquarters to meet the team, see operations, and confirm their fit with the culture.
Under the FTC Franchise Rule, which of the following triggers the requirement to provide an FDD?
Answer: When a franchisor makes a 'franchise offer' as defined by the rule
The FTC Franchise Rule requires FDD delivery when a 'franchise offer' is made — defined as offering a franchise for sale in exchange for a required payment — not merely during early exploratory conversations.