Changes to the Indiana Franchise Law were recently passed and become effective on July 1, 2020. One of those changes is the addition of a duty on the part of the franchisor to file an amendment application and the amended Franchise Disclosure Document with the state within 30 days after the franchise undergoes any material change. Under the current law, if a franchisor’s Franchise Disclosure Document was amended during the registration year for material changes, the franchisor was not required to file an amendment application with Indiana in order to begin using the amended FDD in that state.
The statute provides examples of material changes which include:
– Termination, closing or failure to renewal the franchise of either (1) 10% of all franchises regardless of location, or (2) 10% of franchises located in Indiana;
– Change in control, corporate name, state of incorporation or reorganization of the franchisor;
– The introduction of a new product, service, model, or line involving an additional investment that exceeds 20% of the average investment made by franchisees before this introduction;
– Any change in franchise fees charged by the franchisor; and
– Significant changes in the franchisee’s obligations to purchase items from the franchisor, limitations on goods or services that a franchisee may offer, obligations to be performed by a franchisor or franchisee; or changes to the franchise agreement.
This is not an exhaustive list and other changes may be designated by the Indiana Securities Commissioner.
As with new and renewing registrations in Indiana, amendment applications must be filed electronically.
A number of years ago, the state of Indiana revised its franchise laws and regulations to provide for a streamlined filing for franchise registration applications that become effective upon filing without review of the Franchise Disclosure Document. At that time, the obligation to file amendment applications during the registration year was deleted. It is interesting that they are now backtracking and adding some additional oversight and filing requirements.
The amendment to the law also:
– permits a franchisor to request a registration expiration date of less than 1 year to allow the franchisor to coordinate Indiana filing deadlines with other state filing deadlines;
– confirms that the Indiana registration exemption for the sale of one franchise within 24 months considers only franchises sold in Indiana;
– confirms that registration application filing fees are not refundable.
As is the case under federal law as well as the franchise laws of other registration states, franchisors have an obligation throughout the year to monitor changes in their system that may impact the information disclosed in the Franchise Disclosure Document. If changes occur that are material – a prospective franchisee would want to have the information when making a decision to purchase a franchise – an update to the Franchise Disclosure Document is required.