Amended in Senate August 19, 2016

Amended in Assembly March 10, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 1782

Introduced by Assembly Member Maienschein

February 4, 2016

An act to begin delete amend Section 31013 end delete begin insert amend, repeal, and add Sections 31013 and 31117 end insert of, and to add begin delete Section 31020 to, end delete begin insert and repeal Sections 31020 and 31115.5 of, end insert the Corporations Code, relating to franchises.

LEGISLATIVE COUNSEL’S DIGEST

AB 1782, as amended, Maienschein. Franchises: offer to sell: trade show.

The Franchise Investment Law generally requires a franchisor to register with the Department of Business Oversight before an offer or sale of a franchise in this state and provides that a willful violation of this law is a crime. Existing law provides, among other things, that an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. Existing law provides that an offer to sell is not made in this state merely because a radio or television program originating outside this state is received in this state.

This bill would begin delete provide than end delete begin insert provide, until January 1, 2020, that end insert an offer to sell is not made in this state merely because a prospective franchisor, or a franchisor who is not then offering a franchise for sale in California and has not registered an offering under the Franchise Investment Law, secures a space at a franchise trade show from which it offers information about its products, services, or system to the general public under specified begin delete circumstances. end delete begin insert circumstances, including, among others, the payment of a fee. end insert The bill would also define a franchise trade show for purposes of the Franchise Investment Law.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 31013 of the Corporations Code is
amended to read:

31013.  

(a) An offer or sale of a franchise is made in this state
when an offer to sell is made in this state, or an offer to buy is
accepted in this state, or, if the franchisee is domiciled in this state,
the franchised business is or will be operated in this state.

(b) An offer to sell is made in this state when the offer either
originates from this state or is directed by the offeror to this state
and received at the place to which it is directed. An offer to sell is
accepted in this state when acceptance is communicated to the
offeror in this state; and acceptance is communicated to the offeror
in this state when the offeree directs it to the offeror in this state
reasonably believing the offeror to be in this state and it is received
at the place to which it is directed.

(c) An offer to sell is not made in this state merely because (1)
the publisher circulates or there is circulated on his behalf in this
state any bona fide newspaper or other publication of general,
regular, and paid circulation which has had more than two-thirds
of its circulation outside this state during the past 12 months, or
(2) a radio or television program originating outside this state is
received in this state.

(d) An offer to sell is not made in this state merely because a
franchisor, or a franchisor who is not then offering a franchise for
sale in California and has not registered an offering under the
provisions of Chapter 2 (commencing with Section 31110), secures
a space at a franchise trade show from which it offers information
about its products, services, or system to the general public if the
franchisor or prospective franchisor does all of the following:

(1) Notifies the commissioner, in a form established by the
commissioner, of its intent to attend and display its concept at the
franchise trade show at least begin delete 14 end delete begin insert 30 end insert days before the show
begin delete accompanied by end delete begin insert and provides the commissioner with all of end insert the
following:

(A) A document, in a form begin delete approved end delete begin insert established end insert by the
commissioner, that includes, at a minimum, all of the following:

(i) The franchise concept brand name and a begin delete brief end delete description of
the potential franchise offering.

(ii) The legal begin delete name of the franchisor or prospective franchisor,
and end delete begin insert name, and, if applicable, the name under which the franchisor
or prospective franchisor does or intends to do business, end insert the
address where it is begin delete domiciled. end delete begin insert domiciled, and the state or country,
if outside the United States, where it is organized. end insert

(iii) The names of the begin insert directors, trustees, general partners, end insert
principal begin delete officers end delete begin insert officers, and other executives who will have
management responsibility end insert of the franchisor or prospective
franchisor.

(iv) The address where the franchisor or prospective franchisor
may be served legal process.

begin insert

(v) Disclosure of any actions listed in Section 31115.5, against
the directors, trustees, general partners, principal officers, or other
executives who will have management responsibility of the
franchisor or prospective franchisor.

end insert begin insert

(vi) Disclosure of any actions listed in Section 31115.5, against
employees or representatives who will be attending the franchise
trade show on behalf of the franchisor or prospective franchisor.

end insert begin insert

(vii) The proposed written or electronic information that the
franchisor or prospective franchisor intends to distribute or use
at the trade show.

end insert

(B) If the franchisor or prospective franchisor already possesses
a current franchise disclosure document not yet registered in
California, a copy of the franchise disclosure document.

(2) Conspicuously posts in public view within its franchise trade
show booth a notice, in a form established by the commissioner,
that states, at a minimum, all of the following:

(A) The franchisor or prospective franchisor is not offering a
franchise for sale in California.

(B) The franchisor or prospective franchisor is not legally able
to offer a franchise for sale in California.

(C) If anyone associated with the franchisor or prospective
franchisor offers a franchise for sale or solicits an offer to purchase
a franchise in California, that action should be reported to the
commissioner.

(D) The contact information of the commissioner.

(e) The form described in paragraph (1) of subdivision (d) shall
be in the form and content prescribed by the commissioner, but,
at a minimum, shall state that it is unlawful for any person to offer
or sell a franchise in California unless the offer of the franchise
has been registered with the commissioner or is otherwise exempt.

begin insert

(f) A franchisor or prospective franchisor requesting an
exemption from a requirement to register pursuant to subdivisions
(d) and (e) shall pay a fee of two hundred twenty-five dollars ($225)
to the commissioner for each day the franchisor or prospective
franchisor exhibits at the trade show.

end insert begin insert

(g) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed.

end insert

begin delete

SEC. 2.  

Section 31020 is added to the Corporations Code, to
read:

31020.  

“Franchise trade show” means an event in this state,
displaying multiple franchise brands and open to multiple
franchisors, that is advertised to, and invites, the general public to
that event where franchisors who satisfy the reasonable criteria of
the franchise trade show’s organizer may secure a space from
where they can inform the members of the general public in
attendance about their existing and prospective products, services,
or systems.

end delete

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 31013 is added to the end insert begin insert Corporations Code end insert begin insert , to
read: end insert

begin insert

begin insert 31013. end insert   

(a) An offer or sale of a franchise is made in this state
when an offer to sell is made in this state, or an offer to buy is
accepted in this state, or, if the franchisee is domiciled in this state,
the franchised business is or will be operated in this state.

(b) An offer to sell is made in this state when the offer either
originates from this state or is directed by the offeror to this state
and received at the place to which it is directed. An offer to sell is
accepted in this state when acceptance is communicated to the
offeror in this state, and acceptance is communicated to the offeror
in this state when the offeree directs it to the offeror in this state
reasonably believing the offeror to be in this state and it is received
at the place to which it is directed.

(c) An offer to sell is not made in this state merely because (1)
the publisher circulates or there is circulated on his behalf in this
state any bona fide newspaper or other publication of general,
regular, and paid circulation which has had more than two-thirds
of its circulation outside this state during the past 12 months, or
(2) a radio or television program originating outside this state is
received in this state.

(d) This section shall become effective on January 1, 2022.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 31020 is added to the end insert begin insert Corporations Code end insert begin insert , to
read: end insert

begin insert

begin insert 31020. end insert   

(a)  “Franchise trade show” means an event in this
state, displaying multiple franchise brands and open to multiple
franchisors, that is advertised to, and invites, the general public
to that event where franchisors who satisfy the reasonable criteria
of the franchise trade show’s organizer may secure a space from
where they can inform the members of the general public in
attendance about their existing and prospective products, services,
or systems.

(b) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 31115.5 is added to the end insert begin insert Corporations Code end insert begin insert ,
to read: end insert

begin insert

begin insert 31115.5. end insert   

(a) The commissioner may summarily issue a stop
order denying the effectiveness of an applicant’s exemption
application pursuant to subdivisions (d), (e) and (f) of Section
31013, if the commissioner finds any of the following:

(1) The proposed business model is not lawful in California.

(2) A director, trustee, general partner, principal officer, or
other executive who will have management responsibility of a
franchisor or prospective franchisor, or an employee or
representative who will be attending the franchise trade show on
behalf of the franchisor or prospective franchisor, has been any
of the following:

(A) Convicted of or pleaded nolo contendere to any felony.

(B) Held liable in a civil action by final judgment of a court for
fraud, embezzlement, or misappropriation of property.

(C) Previously violated any franchise law of any state.

(3) The business would constitute a misrepresentation to, or
deceit or fraud of, investors.

(4) The franchisor or prospective franchisor fails to meet the
requirements of subdivision (d) to (e), inclusive, of Section 31013.

(b) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 31117 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

31117.  

begin insert (a) end insert begin insert   end insert Upon the entry of a stop order under Section 31115
begin insert or 31115.5, end insert the commissioner shall promptly notify the applicant
that it has been entered and of the reasons therefor and that upon
receipt of written request the matter will be set down for hearing
to commence within 15 business days after such receipt unless the
applicant consents to a later date. If no hearing is requested within
30 days after receipt of the notice and none is ordered by the
commissioner, the order will remain in effect until it is modified
or vacated by the commissioner. If a hearing is requested or
ordered, the commissioner, after notice and hearing in accordance
with the provisions of Chapter 5 (commencing with Section 11500)
of Part 1 of Division 3 of Title 2 of the Government Code, in
connection with which the commissioner shall have all of the
powers granted thereunder, may modify or vacate the order or
extend it until its final determination.

begin insert

(b) This section shall remain in effect only until January 1, 2022,
and as of that date is repealed.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 31117 is added to the end insert begin insert Corporations Code end insert begin insert , to
read: end insert

begin insert

begin insert 31117. end insert   

(a) Upon the entry of a stop order under Section 31115,
the commissioner shall promptly notify the applicant that it has
been entered and of the reasons therefor and that upon receipt of
written request the matter will be set down for hearing to
commence within 15 business days after such receipt unless the
applicant consents to a later date. If no hearing is requested within
30 days after receipt of the notice and none is ordered by the
commissioner, the order will remain in effect until it is modified
or vacated by the commissioner. If a hearing is requested or
ordered, the commissioner, after notice and hearing in accordance
with the provisions of Chapter 5 (commencing with Section 11500)
of Part 1 of Division 3 of Title 2 of the Government Code, in
connection with which the commissioner shall have all of the
powers granted thereunder, may modify or vacate the order or
extend it until its final determination.

(b) This section shall become effective on January 1, 2022.

end insert