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California Sell Franchise Contracts San Diego
California Sell Franchise Contracts San Diego Summary
The laws, both federal and state, regulating the sale of a franchise in the United States are numerous, and the penalties for an infraction of any one of the laws can be severe. This notwithstanding, franchising is still a great way to grow a profitable business into an empire. Before you start selling franchises, you are going to need to get some legal documents together, including:
• Disclosure documents which conform to the FTC and state laws; and
• A franchise agreement between you, the franchisor, and franchisees.
Franchisors generally must have documented ownership over the trademarks related to the franchise business. To simplify the financial disclosures required to be made by a franchisor, a new corporation separate from the business entity in which the business was developed should be formed and utilized only for the sale and operation of franchises.
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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.