California
Franchise Registration
California
California has both franchise registration and business opportunity laws.
California Franchise Laws
California Cal Corp Code § 31005 defines a “Franchise” as an oral or written contract or agreement, which:
- A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
- The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
- The franchisee is required to pay, directly or indirectly, a franchise fee, which exceeds the sum of $500 on an annual basis. See Comm.’s Order Amending Regulation Section 310.011 (2001)
California franchise laws apply when the franchisee is a California resident or when the franchise business is intended to be established, operated, or maintained within the state. California Cal Corp Code § 31005
California Franchise Registration Filing
California is a franchise registration state which requires the filing of the FDD with the state of California for Franchise Regulator review and, commonly, the issuance of a comment letter containing edits that the Franchise Regulator would like to make to the FDD.
The initial filing fee is $1,865 and must be accompanied by the following documents:
- Uniform Franchise Registration Application with Notarized Certification
- Uniform Franchise Consent to Service of Process
- Corporate Acknowledgement
- Franchisor’s Costs and Sources of Funds
- Franchise Seller Disclosure Form
- Consent of Accountant
- Notice of Exemption for Internet Advertisements
- Customer Authorization of Disclosure of Financial Records
- Franchise Advertising
- A Clean and Marked Copy of the Franchise Disclosure Document (FDD)
California Fee Deferrals
California may require a fee deferral, which requires a deferment on the payment of initial franchise fees until the franchisor has completed its pre-opening obligations and is open for business. (Cal Corp Code § 31113).
California does have a Surety bond and Escrow option. The Escrow option requires a bank with branches in California to serve as an Escrow Agent. The Escrow option requires both California and Franchisee Approval to release funds.
Since California requires the franchisee to be open for business, the surety bond is a great option, especially where there is a buildout, so the franchisor can receive the initial franchise fee without an extended delay.
However, a surety bond requires a franchisor to apply for the bond, go through underwriting, give a personal guarantee in some situations, and pay a premium of 1-3% of the bond amount normally.
The Fee Deferral requirement is generally an easier path with less state involvement, but it may not be suitable for everyone.
California Franchise Amendments
California requires a prompt filing of any material change. Cal Corp Code § 31123.
California treats the filing of a new Franchise Seller Disclosure Form as an amendment filing to the FDD.
A post-effective amendment filing is $50.
California Franchise Renewals
California registrations must be renewed each year. Cal Corp Code § 31121.
The renewal filing fee is $1,245 and must be accompanied by the following documents:
- Uniform Franchise Registration Application with Notarized Certification
- Uniform Franchise Consent to Service of Process
- Uniform Franchise Registration Application with Notarized Certification
- Uniform Franchise Consent to Service of Process
- Corporate Acknowledgement
- Franchisor’s Costs and Sources of Funds
- Franchise Seller Disclosure Form
- Consent of Accountant
- Notice of Exemption for Internet Advertisements
- Customer Authorization of Disclosure of Financial Records
- Franchise Advertising
- A Clean and Marked Copy of the Franchise Disclosure Document (FDD)
California's Franchise Relationship and Termination
California makes it unlawful for a franchisor to terminate or fail to renew a franchise except for good cause.
In addition, the franchisor must give a minimum notice of cure period of 60 days’ (up to a maximum of 75 days) before termination can take effect, except as to specified defaults, for which immediate termination is allowed. Cal Corp Code § 20020.
Immediate termination is allowed for insolvency, abandonment, mutual agreement to terminate, material misrepresentation, legal violation persisting 10 days after notice, repeated breaches, judgment, criminal conviction, monies owed to the franchisor more than 5 days past due, and imminent danger to public health or safety. Cal Corp Code § 20021.
Further, except in certain situations, a franchisor may be required to purchase from a franchisee its inventory, supplies, equipment, fixtures, and furnishings used in the franchise business. Cal Corp Code § 20022.
More information about California’s Franchise Laws
California Franchise Registration Laws
California Dept of Financial Protection & Innovation Website
California Business Opportunity and Seller Assisted Marketing Plan Laws
California also has Business Opportunity Laws in the way of Seller Assisted Marketing Plans. “Seller assisted marketing plan” means any sale or lease or offer to sell or lease any product, equipment, supplies, or services that requires a total initial payment exceeding five hundred dollars ($500), but requires an initial cash payment of less than fifty thousand dollars ($50,000), that will aid a purchaser or will be used by or on behalf of the purchaser in connection with or incidental to beginning, maintaining, or operating a business when the seller assisted marketing plan seller has advertised or in any other manner solicited the purchase or lease of the seller assisted marketing plan and done any of the following acts:
- Represented that the purchaser will earn, is likely to earn, or can earn an amount in excess of the initial payment paid by the purchaser for participation in the seller assisted marketing plan.
- Represented that there is a market for the product, equipment, supplies, or services, or any product marketed by the user of the product, equipment, supplies, or services sold or leased or offered for sale or lease to the purchaser by the seller, or anything, be it tangible or intangible, made, produced, fabricated, grown, bred, modified, or developed by the purchaser using, in whole or in part, the product, supplies, equipment, or services that were sold or leased or offered for sale or lease to the purchaser by the seller assisted marketing plan seller.
- Represented that the seller will buy back or is likely to buy back any product made, produced, fabricated, grown, or bred by the purchaser using, in whole or in part, the product, supplies, equipment, or services that were initially sold or leased or offered for sale or lease to the purchaser by the seller assisted marketing plan seller. (Cal Civ Code § 1812.201).
California Seller Assisted Marketing Plans Registration
The sale of Seller Assisted Marketing Plans requires a disclosure document, contract, financial statement, consent to service, and list of salespersons and their residential addresses, along with your filing fee of $100 payable to the Attorney General’s office at least 30 days before you start advertising or selling.
California SAMP Franchise Exemption
Franchises are excluded from the Seller Assisted Marketing Plan Laws. (CA Civ Code § 1812.201(b)(2) (2024)).
You can find more information about California’s Seller Assisted Marketing Plan here:
California’s Seller Assisted Marketing Plan
If you offer a business opportunity in California, we can help you determine if, and how, your company must comply with California’s Franchise of Business Opportunity laws.
If you would like to learn more about our franchise services and franchise compliance in California, contact us or call (757) 263-4596 to schedule a consultation. You can also visit our interactive map to explore franchise laws in other states.
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