Franchisors in Indiana must follow specific rules when offering a franchise to potential franchisees. The Federal Trade Commission enforces the Franchise Rule, which requires franchisors to provide a Franchise Disclosure Document to potential buyers.
This document ensures that franchisees receive the necessary information to make an informed decision before entering a franchise agreement.
Providing a disclosure agreement
In Indiana, franchisors must provide the Franchise Disclosure Document to the franchisee at least 14 days before the signing of any contracts or accepting any payments. This 14-day window allows the potential franchisee time to review the terms and evaluate the risks. Failing to meet this deadline could lead to legal disputes and regulatory penalties for the franchisor.
Know what to include in the agreement
The FDD must contain certain key items that the franchisor has an obligation to disclose. Some of the most important sections include:
- The franchisor’s business background
- Any history of litigation
- Initial and ongoing fees
- An overview of any restrictions on how the franchisee can operate the business
These disclosures give the franchisee a clear picture of what to expect and help prevent misunderstandings.
Addressing financial projections
While it is optional, many franchisors choose to include a financial performance disclosure. This provides financial projections or historical performance data for franchise locations. Accurate and transparent financial information helps build trust with potential franchisees and sets realistic expectations.
Complying with disclosure laws
Franchisors must also be mindful of the state’s ongoing disclosure requirements. Indiana does not require franchisors to register their franchise, but they must update the FDD annually. This update should include any changes to fees, territories or company financials. Staying compliant with these updates reduces the risk of legal challenges and keeps the franchise in good standing.
By adhering to these franchise disclosure requirements, franchisors in Indiana can build solid and transparent relationships with franchisees. A well-prepared FDD not only protects the franchisee but also strengthens the franchisor’s reputation and long-term success.