California Purchase Franchise San Diego Details

In many ways, starting a business through buying a franchise is similar to starting a non-franchise business. A form of doing business must be selected and created, a location for the business must be located and acquired, and employees and other workers must be hired. Those buying a franchise usually benefit from doing business either as an S-Corp or LLC. Most new franchisees elect to lease a storefront or office to house the franchise business, and therefore a lease must be negotiated and executed. Unless the person buying the franchise intends to be the sole worker for the franchise, employees must be hired to provide labor for the franchise business.

What is a Franchise?

Generically, a franchise involves (1) an agreement between two or more people, (2) where one person (a “franchisor”) gives another person (a “franchisee”) the right to enter a business, (3) in which the franchisee licenses the trademark of the franchisor,; (4) and the franchisee makes use of the marketing plan of the franchisor; and (5) the franchisee pays the franchisor more than the wholesale price of any goods received.

How are Franchises Regulated?

Federal Regulation of Franchises

The Federal Trade Commission (FTC) regulates franchises by requiring twenty-one specific pre-sale disclosures be made from a franchisor to a prospective franchisee. These disclosures are referred to as Franchise Disclosure Documents (FDD).

California Regulation of Franchises

California regulates franchises through the Franchise Investment Law, which begins at California Corporations Code § 31000. Under the California Franchise Investment Law, franchisors must prepare and file an application for registration and pay a filing fee to the Commissioner of Corporations prior to offering franchises for sale. Concurrent with this application, the franchisor must file the Franchise Disclosure Document (FDD), a copy of the proposed franchise agreement, and audited and unaudited financial statements. These documents must be updated with the state annually, and in cases of significant material changes, quarterly.