How do I Sell a Franchise in my Business in California?
The California Franchise Investment Law (California Corporations Code Sections 31000 – 31516) (the “Franchise Investment Law”), along with Chapter 3, Subchapter 2.6, Sections 310.000 through 310.505 of the California Code of Regulations govern how franchises are sold in California. Before beginning, one must understand that a franchise offering in California is considered a “sale of securities” which, unless an exemption from registration exists, requires registration with not only the California Commissioner of Business Oversight (“Commissioner”), but may be required with the Federal Trade Commission as well.
Before selling any franchise in California, the franchisor must file a Uniform Franchise Disclosure Document (“UFDD”) with the Commissioner. The UFDD must contain certain information including, but not limited to:
- The following statement: “THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED TOGETHER WITH THE DISCLOSURE DOCUMENT.” This statement may be contained in a preface, exhibit or appendix to the UFDD.
- A statement disclosing “whether the franchisor, any person or franchise broker in Item 2 of the UFDD is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq., suspending or expelling such persons from membership in such association or exchange. The information required by this provision may be included in Item 3 or in a preface, exhibit or an appendix, which is part of the” UFDD, however, if “set forth in a preface, exhibit or an appendix, a reference to the preface, exhibit or appendix shall be prominently set forth in Item 3” of the UFDD. See Guidelines for Franchise Registration, Paragraph 3, Page 2, State of California, Department of Business Oversight, Aug. 2015
- A Franchise Registration Fee of $675.00
In Addition to the UFDD, the franchisor must provide:
- Application Cover Page
- Supplemental Information Page
- Sales Agent Disclosure Form for each person offering and selling the franchise in California
- A Consent to Service of Process authorizing the California Secretary of State to act as agent
- A Customer Authorization Form
- A copy of the franchisor’s financial statement audited by an independent certified public accountant (CPA) in accordance with generally accepted accounting principles (GAAP) Id. at Paragraph 5, Page ii
Like many aspects of doing business in California, selling a franchise in California can be quite complex and confusing. Failing to include any required document or failing to make any disclosure required by the regulations will, in all likelihood, result in summary rejection of the application by the Commissioner requiring the applicant to begin the process anew.
To understand the laws, rules, and regulations which will enable you to make informed decisions about your company, and how best to do business in California, you need the services of an attorney uniquely qualified to give you that advice. Michael Leonard, Esq. of San Diego Corporate Law, named Best of the Bar by the San Diego Business Journal in 2016, is that attorney. To schedule a consultation with Mr. Leonard to discuss any business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.