FDD Item 20: Outlets and Franchisee Information Explained
Item 20 of the franchise disclosure document requires franchisors to disclose detailed information about the outlets in the system and the franchisees who operate them, including outlet counts, openings, and closures. It also provides prospective franchisees with access to franchisee contact information through related FDD exhibits. It is governed by 16 CFR 436.5(t).
What Is Item 20 of the FDD?
Item 20 is the outlet and franchisee information section of the franchisedisclosure document. It provides prospective franchisees with information about the system’s size, growth, and turnover, along with access to franchisee contact information provided through the FDD exhibits for due diligence purposes. The disclosure requirements are codified under 16 CFR 436.5(t) and enforced by the Federal Trade Commission.
Item 20 is one of the most data-heavy items in the FDD. It relies on a set of standardized tables covering the franchisor’s last three fiscal years, plus franchisee contact lists and disclosures about confidentiality provisions and franchisee organizations. For this item, an outlet includes any outlet of a type substantially similar to the one offered to the prospective franchisee.
What Must Be Disclosed in Item 20?
Item 20 includes standardized tables that track outlet counts and changes across the franchisor’s last three fiscal years.
Systemwide Outlet Counts
The first table, the Systemwide Outlet Summary, reports the number of franchised, company-owned, and total outlets at the start and end of each of the last three fiscal years, along with the net change for each category. This gives candidates a top-level view of whether the system is growing, holding steady, or shrinking.
Outlet Status by State
Several tables break down outlet data by state. The transfers table reports outlets that changed hands from a franchisee to a new owner, where a transfer means a change in ownership or control of a franchised outlet to a person other than the franchisor or its affiliate during its term. The franchised outlet status table tracks, for each state and year:
- Outlets at the start of the year
- Outlets opened
- Terminations
- Non-renewals
- Outlets reacquired by the franchisor
- Outlets that ceased operations for other reasons
- Outlets at the end of the year
A parallel table reports the status of company-owned outlets, including outlets opened, reacquired from franchisees, closed, and sold to franchisees. The rule defines the key events: a termination is the franchisor ending a franchise agreement before its scheduled expiration, a non-renewal is an agreement that is not renewed at the end of its term, and a reacquisition is the franchisor acquiring a franchised outlet during its term.
Projected Openings
A fifth table reports projected openings. It shows, by state, the number of franchise agreements signed for outlets that have not yet opened, along with the number of new franchised and company-owned outlets the franchisor projects to open in the next fiscal year based on agreements signed and anticipated openings.
Confidentiality Clauses and Franchisee Organizations
Confidentiality Provisions
Item 20 must disclose whether franchisees signed confidentiality provisions during the last three fiscal years that restrict their ability to communicate with prospective franchisees. When they did, the franchisor must include prescribed language noting that some current and former franchisees signed provisions restricting their ability to speak openly about their experience, and that a candidate may wish to speak with franchisees while knowing that not all of them will be able to communicate freely. The franchisor may also disclose the number and percentage of franchisees who signed such clauses.
Trademark-Specific Franchisee Organizations
Item 20 must disclose contact information for each trademark-specific franchisee organization tied to the system, to the extent known, when the organization was created, sponsored, or endorsed by the franchisor, or when it is organized under state law and has asked to be included. An independent organization that wants to be listed must renew its request each year, no later than 60 days after the close of the franchisor's fiscal year.
Franchisee Contact Information
Beyond the tables, Item 20 requires contact information that lets candidates speak directly with franchisees.
Current Franchisees
Item 20 requires the names and outlet locations of current franchisees, typically provided through an FDD exhibit.
- Address and telephone number for each outlet
- A franchisor may instead list all franchised outlets in the state
- If that total is fewer than 100, it expands to contiguous states, then the next closest states, until at least 100 outlets are listed
Former Franchisees
Item 20 must also list every franchisee who left the system during the most recently completed fiscal year, plus certain franchisees who left recently, as defined by the Franchise Rule.
- Name, city and state
- Current business telephone number, or last known home telephone number
- Departures by termination, cancellation, non-renewal, or otherwise ceasing to operate
Previously-Owned Outlets
If the franchisor is selling a previously-owned outlet now under its control, Item 20 requires five prior fiscal years of history for that outlet.
- Each previous owner's contact information
- The time period each previous owner controlled the outlet
- The reason for each change in ownership
- The periods when the franchisor itself retained control
How Item 20 Connects to Other FDD Items
Item 20 gives candidates the data and contacts to test what other items describe. The outlet counts and turnover here sit alongside Item 19, the financial performance representations, since growth and closure trends give context to any performance figures. The termination, non-renewal, and transfer figures connect to Item 17, which covers the renewal, termination, transfer, and dispute resolution terms behind those events. The current and former franchisee lists also support a candidate’s own due diligence, letting them compare what the franchisor discloses with what operators report firsthand. Item 21, the financial statements, rounds out the picture with the franchisor’s financial condition.
Common Mistakes Franchisors Make With Item 20
The most common Item 20 mistakes involve inaccurate outlet counts and incomplete franchisee lists. Because the tables must reconcile across years and categories, small errors in start-of-year and end-of-year figures create visible inconsistencies that undermine the entire item.
Miscategorizing an outlet event is a frequent issue, such as recording a reacquisition as a termination, or counting a transfer incorrectly. Omitting former franchisees who left in the last fiscal year, or leaving out the required statement about contact information being shared, also creates compliance gaps. Item 20 must be updated each year with current figures, and the franchisee contact lists must be accurate as of the issuance date so candidates can contact current and former franchisees.
Franchise Genesis
How Franchise Genesis Helps Franchisors Prepare Item 20
Item 20 turns the system's real history into a set of numbers and contacts that candidates rely on, and its tables must reconcile cleanly across three years. Getting Item 20 right means accurate counts, correct event categories, and complete franchisee lists.
Franchise Genesis works with franchisors to prepare a franchise disclosure document that is accurate, compliant, and built to support franchise sales. Experienced franchise attorneys are included in the development program. They help franchisors build the outlet tables correctly, apply the rule's definitions for transfers, terminations, non-renewals, and reacquisitions, and present the franchisee contact information Item 20 requires.
Questions
Frequently Asked Questions
What is Item 20 of the FDD?
Item 20 discloses information about the system’s outlets and franchisees, including outlet counts, openings and closures over the last three fiscal years, projected openings, and contact information for current and former franchisees. It is governed by 16 CFR 436.5(t).
How many years of outlet data does Item 20 cover?
The outlet tables cover the franchisor’s last three fiscal years. Projected openings look ahead to the next fiscal year, and the history for a previously-owned outlet under franchisor control covers the last five fiscal years.
Why does Item 20 list former franchisees?
The list lets prospective franchisees contact operators who left the system so they can hear about a range of experiences during their research. The franchisor must also tell candidates that their own contact information may be shared with future buyers when they leave.
What is the difference between a termination, a non-renewal, and a transfer?
A termination is the franchisor ending an agreement before its term without paying the franchisee. A non-renewal is an agreement that is not renewed at the end of its term. A transfer is a person other than the franchisor or an affiliate acquiring a controlling interest in an outlet during its term.
What are confidentiality clauses in Item 20?
These are provisions that some franchisees sign that may restrict their ability to communicate about their experience. When franchisees signed them in the last three fiscal years, Item 20 must include prescribed language alerting candidates to that fact.