Franchisor Update: Amendment to Indiana Franchise Law

Franchisors who operate and sell franchises in Indiana should take note that, effective July 1, the Indiana Franchise Law was amended to require franchisors to file amendments to registrations if there is a material change to their franchise system. The amended law also permits franchisors to designate an expiration date earlier than one year from their registration date, among other clarifying changes and minor updates.

First, and most significantly, the amendment to the Indiana Franchise Law requires franchisors registered in Indiana to file an amended disclosure document within 30 days of any “material change” as defined in the statute, which includes:

• Termination, closing, or failure to renew 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 new product, service, model, or line involving an additional investment by franchisees that exceeds 20% of the average investment previously made by franchisees;
• Any change in the 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 contract or agreement or any amendments.

In addition, the Indiana Securities Commissioner may designate other changes as “material” in the future.

Fortunately, filing in Indiana is relatively painless. Indiana uses an electronic filing portal, and registrations—and now, amendments—are typically effective immediately upon filing. Unlike other registration states, Indiana does not (yet) impose a filing fee for amendments. As such, the additional requirement to file an amendment does not present a significant new burden on franchisors; after all, the requirement to file material amendments already exists in other registration states. Still, franchisors must be attentive to these new Indiana-specific disclosure requirements, which involve circumstances that would not necessarily trigger a filing requirement elsewhere.

Next, the amendment allows franchisors to request that their registration expire earlier than one year from the registration date. Under the previous law, a registration made effective in October, for example, would automatically expire in the following October, potentially out of synch with other state registrations and effectiveness under the Federal Trade Commission’s Franchise Rule. Now, franchisors may designate an earlier expiration date for their Indiana registration so as to coordinate with other state registrations and federal law.

The final two notable changes to the Indiana Franchise Law are more form than substance. First, the amendment clarifies that qualification for the “isolated sale exemption”—an exemption for franchisors who sell no more than one franchise in any two-year period—only takes into account franchises sold in Indiana. The purpose of this change was purely to clear up ambiguity, as the Indiana Securities Division had already been interpreting and enforcing this exemption consistent with the way it is now written. Second, the amendment provides that filing fees are non-refundable if a registration is denied or withdrawn. Previously, the Indiana Securities Commissioner was permitted to retain only $150 in filing fees, while the rest would be refunded. A Compliance Alert circulated by the Indiana Secretary of State pointed out that refunds were seldom requested in the past anyway, and that this new policy is consistent with policies of other industries regulated by the Securities Division.

For more information or assistance with your company’s franchise compliance requirements, please contact your Quarles & Brady attorney or:

• David Beyer: (813) 387-0264 / david.beyer@quarles.com
• Nick D’Amico: (813) 384-6716 / nicholas.damico@quarles.com