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Franchises in Indiana Must Now Amend Their FDDs Upon a “Material Change” – Will Your COVID-19 Change Franchises in Indiana Must Now Amend Their FDDs Upon a “Material Change” – Will Your COVID-19 Change

Franchises in Indiana Must Now Amend Their FDDs Upon a “Material Change” – Will Your COVID-19 Changes Trigger a Duty to Amend?

Effective July 1, 2020, certain amendments to the Indiana Franchise Act will take into effect. The Indiana Secretary of State’s Compliance Alert can be found here.

The biggest change to the Act (Indiana Code § 23-2-2.5-13.1(b)) now requires franchisors to amend the Franchise Disclosure Document within 30 days of any “material change” to the franchise business. The legislature’s definition of a material change includes:
 
  1. Termination, closing or failing to renew the franchise of either 10% of all franchises (regardless of location), or 10% of the franchises located in Indiana;
  2. A change in control of the franchisor, corporate name, state of incorporation, or any reorganization of the franchisor;
  3. The introduction of any new product, service, model or line involving (directly or indirectly) an additional investment by franchisees that exceeds 20% of the average investment made by franchisees before the product, service, model, or line’s introduction;
  4. Any change in the franchise fees charged by the franchisor;
  5. 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 to the franchise agreement or any amendments; and
  6. Any other changes that the Commission deems material through a rule or order issued by the Commissioner.
As Franchisors look to make changes to their operations due to COVID-19 (or unfortunately look to possibly close units), Franchisors need to consider whether the potential changes trigger an affirmative obligation to amend their Franchise Disclosure Document. 

For more information, contact Christina Fugate or Alice Kelly.   

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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