Indiana franchise law is built on two statutes: the Franchise Disclosure Act at Indiana Code 23-2-2.5, which governs how franchises are registered and sold, and the Franchise Relationship Act at Indiana Code 23-2-2.7, which governs how franchisors must treat franchisees once the deal is done. Together they require franchisors to register with the state before offering a franchise, hand over a detailed disclosure document before taking any money, and follow specific rules when ending or declining to renew the relationship. Franchisees hurt by violations can recover damages, and in serious cases the state can impose civil penalties or pursue felony charges.
When Indiana Franchise Law Applies
The protections only kick in if the arrangement meets the statutory definition of a franchise. Under Indiana Code 23-2-2.5-1, three things must all be true: the franchisee gets the right to sell goods or services under a marketing plan largely controlled by the franchisor, the business is substantially associated with the franchisor’s trademark or brand, and the franchisee pays a franchise fee.1Indiana General Assembly. Indiana Code 23-2-2.5-1 – Definitions Miss any one of those three and the arrangement sits outside the statute.
The Fractional Franchise Carve-Out
Indiana excludes what it calls a fractional franchise. If the prospective franchisee (or any of its officers or directors) has at least two years of experience in the same type of business, and both sides reasonably expect franchise-related sales to stay under 20 percent of the franchisee’s total gross sales during the first year, the arrangement is excluded from the statute entirely.1Indiana General Assembly. Indiana Code 23-2-2.5-1 – Definitions Both conditions have to be met. Experience alone isn’t enough if the franchise line is projected to become a major share of revenue.
Registration With the Securities Division
Indiana is one of a small group of states that require franchisors to register before offering or selling a franchise. The filing goes to the Securities Division of the Indiana Secretary of State’s office, and no franchisor may legally offer a franchise in the state until the registration is effective.2Indiana Secretary of State. Franchise – Indiana Securities Division
Initial registration requires the Franchise Disclosure Document and a nonrefundable $500 filing fee. Registration lasts one year from the date the commissioner issues the order. To stay in good standing, the franchisor must file a renewal statement no later than 30 days before the current registration expires, with a $250 renewal fee.3Justia. Indiana Code 23-2-2.5 – Franchises Letting a registration lapse and continuing to sell is itself a violation.
Exemptions
A de minimis exemption applies when a franchisor sells no more than one franchise in Indiana during any 24-month period. A separate large net worth exemption lets franchisors above a specified financial threshold offer and sell without registering.2Indiana Secretary of State. Franchise – Indiana Securities Division These exemptions are self-executing, so no prior approval is needed, but the party claiming an exemption carries the burden of proving it applies. A franchisor that wants certainty can ask the Securities Division for a determination letter.
What Must Be Disclosed Before a Sale
Indiana requires a franchisor to deliver a disclosure document to every prospective franchisee at least 10 days before the franchisee signs a binding agreement or the franchisor accepts any payment, whichever comes first.4Indiana General Assembly. Indiana Code 23-2-2.5-9 – Offer or Sale of Franchise, Requisites, Disclosure Statement The state statute says 10 days, not 10 business days. The federal FTC Franchise Rule separately requires 14 calendar days, so franchisors selling nationally generally use the longer federal window to satisfy both.
The document itself follows the FTC Franchise Rule format, which calls for 23 categories of information.5Federal Trade Commission. Franchise Rule Those cover corporate background, litigation and bankruptcy history, audited financial statements, estimated initial investment, ongoing fees, restrictions on what the franchisee can sell, territorial rights, and the obligations of both sides. Copies of all proposed contracts have to accompany the disclosure.
The waiting period gives the prospect real time to read the materials, run them past an attorney or accountant, and ask questions before writing a check. A franchisor that collects a deposit or gets a signature inside that window has violated the statute even if the disclosure itself was accurate.
Termination and Nonrenewal
The Franchise Relationship Act restricts what franchisors can put into the agreement in the first place. A provision letting the franchisor unilaterally terminate the franchise without good cause or in bad faith is unlawful.6Indiana General Assembly. Indiana Code 23-2-2.7-1 – Franchise Agreement, Unlawful Provisions The good cause standard means the franchisor has to point to a legitimate reason tied to the franchisee’s performance or conduct. Boilerplate giving the franchisor unrestricted termination rights is unenforceable in Indiana regardless of what the contract says.
When a franchisor does terminate or decline to renew, Indiana Code 23-2-2.7-3 requires at least 90 days’ written notice unless the franchise agreement itself specifies a different notice period.7Indiana General Assembly. Indiana Code 23-2-2.7-3 – Termination or Election Not to Renew Franchise, Notice That 90-day figure is a floor that controls when the contract is silent. Many agreements set their own timelines, so the contract language matters.
Indiana law does not guarantee automatic renewal. Whether a franchisee gets a second term depends on what was negotiated originally. If the contract says nothing about renewal, the franchisor has no obligation to offer one. The 90-day notice still applies to nonrenewal, giving the franchisee time to wind down, sell inventory, or try to negotiate a transition.
If you receive a termination notice, the first thing to check is whether the agreement provides a cure period. Many franchise contracts give the franchisee 30 or 60 days to fix the problem that triggered the notice. Fix it inside that window and the termination usually comes off the table. If no cure period is written in, the 90-day statutory notice still runs, but it doesn’t by itself create a right to cure.
What a Franchisee Can Recover
A franchisee who wins a judgment for a Disclosure Act violation can recover consequential damages plus interest.8Indiana General Assembly. Indiana Code 23-2-2.5-28 – Violations, Judgment, Damages, Interest Consequential damages can include lost profits, the value of the initial investment, and other financial harm traceable to the violation. Interest keeps a successful franchisee from being penalized for how long the litigation took.
A separate antifraud provision makes it unlawful for anyone involved in the offer, sale, or purchase of a franchise to use any scheme to defraud, make material misstatements or omissions, or engage in conduct that operates as a fraud.9Justia. Indiana Code 23-2-2.5-27 – Fraud or Deceit Unlawful That reach is broader than the registration and disclosure rules. A franchisor that registered correctly and delivered the FDD on time can still violate the statute by lying about earnings or hiding material litigation.
One practical caveat: many franchise agreements include arbitration clauses that push disputes out of court. Arbitration is often faster and cheaper, but decisions are generally binding, discovery is limited, appeal rights are narrow, and some clauses require arbitration in the franchisor’s home state. Read that language before signing.
State Enforcement and Criminal Exposure
The Indiana securities commissioner has independent enforcement authority on top of whatever private claims a franchisee might bring. The commissioner can issue a cease and desist order and impose civil penalties of up to $10,000 per violation when someone has violated or is about to violate the Disclosure Act.10Justia. Indiana Code 23-2-2.5-34 – Violations, Orders and Notices, Civil Penalties
The sharpest consequence is criminal. Anyone who willfully violates the Disclosure Act, willfully violates a rule or order issued under it, or knowingly makes a false or misleading statement in connection with a franchise sale commits a Level 5 felony.11Justia. Indiana Code 23-2-2.5-37 – Violations, Felony A Level 5 felony in Indiana carries a sentencing range of one to six years. Prosecutions are rare, but the exposure is real for schemes built on fabricated financials or outright fraud.