When Does a Franchise Amendment Application Need To Be Filed?

A common question among franchisors is: When does a franchise amendment application need to be filed? The general answer is that you must file an amendment whenever a material change affects the franchise. However, it may not always be clear if a change in your franchising operations is material.

Our attorneys at Franchise.Law could help you determine whether a change in your business is material, requiring you to amend your Franchise Disclosure Document (FDD) and make filings with state regulatory bodies. Our North Carolina-licensed lawyers focus on representing franchisors across the country to ensure their compliance with federal and multi-state franchise laws.

What Constitutes a Material Change That Leads to the Filing of a Franchise Amendment?

Certain events or developments may require you to file a franchise amendment to ensure your FDD remains accurate and up to date. You may need to file an FDD amendment application when:

• You have a significant lawsuit against your franchisor company
• Your company’s management or board of directors changes
• You sell your business to new owners
• Your company changes its fee or royalty structure
• Reduced sales or similar occurrences adversely alter the franchise’s finances

You need to amend the FDD to disclose these events as soon as practicable once you become aware of them. During this time, you should not offer or sell any franchises. Certain state franchise laws require you to file amendment applications within different periods of time after a material change occurs. Disclosing a material change in an annual or a quarterly report does not exempt you from filing an amendment. If you have any doubts about your amendment filing obligations, consult with our attorneys at Franchise.Law for seasoned and knowledgeable advice.

What Are the Consequences of Failing To File a Franchise Amendment?

FTC and state regulatory authorities could levy substantial fines and penalties if you fail to file a franchise amendment application when required. Depending on the specific facts of the situation, those fines and penalties might include the following:

• Monetary penalties that could amount to tens of thousands of dollars per day for each day after a material event occurred
• Regulatory litigation for fraud or misrepresentation
• Excusing franchisees from paying royalties or allowing franchisees to cancel their agreements and receive refunds of franchise royalty fees
• Criminal charges if the authority deems the failure to file an amendment was willful
• Prohibitions against new franchise sales for an extended period

In limited circumstances, the FTC may seek to hold a franchisor’s owners and directors personally liable for fines and penalties. Given the severity of these potential penalties, you should always consult with experienced legal counsel, such as our attorneys at Franchise.Law, if you have any questions about your obligation to file a franchise amendment.

What Information Should Be Included in an Amendment Application?

When you need to amend your franchise filing, you should use the same format and systems you utilized to prepare and file your original FDD. The amendment should generally include updates and revisions to the sections of your FDD that the material change affected, plus exhibits that support or justify the amendment.

Both the FTC and state franchise agencies prefer full disclosure of information about a material change. Call Franchise.Law for advice on how to disclose sufficient information in your franchise amendment to establish a safe harbor that protects your franchise from challenges of inadequate or incomplete disclosures.

Call Franchise.Law for Help With Your Franchise Amendment Application

At Franchise.Law, we could provide guidance on when you need to file a franchise amendment application. We could analyze your situation to verify if your franchisor business has experienced a material change and provide straightforward, knowledgeable advice on how to prepare and file the application. Call to schedule an appointment today.