BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1782 (Maienschein) - Franchises: offer to sell: trade show
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|Version: March 10, 2016 |Policy Vote: B. & F.I. 7 - 0, |
| | JUD. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Debra Cooper |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1782 would authorize the display of concepts at
franchise trade shows in California, as specified, for
franchisors that are not registered with the Department of
Business Oversight (DBO) to sell franchises.
Fiscal
Impact:
Unknown moderate costs to DBO to create an application form
for franchisors and prospective franchisors. (State
Corporations Fund)
Unknown, but potentially significant costs to DBO to
investigate any reported violations. (State Corporations Fund)
Background: The California Franchise Investment Law (CFIL) regulates
AB 1782 (Maienschein) Page 1 of
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franchise investment opportunities by subjecting various aspects
of the franchise relationship to filing, review, and oversight
by DBO. CFIL requires that a franchisor must register with DBO
before an offer or sale of a franchise and provides that a
willful violation of the law is a crime.
Under existing law, DBO regards non-registered franchisors
exhibiting at trade shows as an offer to sell a franchise which
would require the franchisor to register with DBO or meet the
requirements for an exemption. According to the bill's sponsor,
this creates a potential barrier for franchisers who are
interested in participating in trades shows to assess the
public's interest in their franchise concepts before undertaking
the registration process.
Under existing law, an offer or sale of a franchise is made in
California 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. Additionally, 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, or when acceptance is
communicated to the offeror in this state.
Under existing law, an offer 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. This
bill would specify that an offer to sell is also not made in
this state merely because a franchisor or prospective franchisor
secures a space at a franchise trade show from which it offers
information about it products or services to the general public.
According to the International Franchise Association,
franchising accounts for over 925,000 jobs across more than
82,700 franchise establishments in California and franchising in
California contributes to over $94 billion in economic activity
each year.
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Proposed Law:
This bill would define a "franchise trade show," and would
provide that 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 the Franchise Investment Law
(FIL), secures a space at a franchise trade show from which it
offers information about its products, services, or system to
the general public, as long as the franchisor or prospective
franchisor does the following:
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 14 days before the show.
Notification must include a document, the franchise concept
brand name and a brief description of the potential franchise
offering, the legal name of the franchisor or prospective
franchisor, and the address where it is domiciled, the names
of the principal officers of the franchisor or prospective
franchisor, and the address where the franchisor or
prospective franchisor may be served legal process.
Conspicuously posts in public view within its franchise trade
show booth a notice, in a form established by the
commissioner, that states that the franchisor or prospective
franchisor is not offering or legally able to offer a
franchise for sale in California, that 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, and the contact information of the commissioner.
Staff
Comments: The provisions of this bill have the potential to
create a new category of fraud and abuse at franchise trade
shows that would be investigated and enforced by DBO. DBO would
be able to enforce any violations under Section 31400 of the
Corporations Code which states that "whenever it appears to the
commissioner that any person has engaged or is about to engage
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in any act or practice constituting a violation of any provision
of this law or any rule or order hereunder, the commissioner may
in the commissioner's discretion bring an action, or the
commissioner may request the Attorney General to bring an action
in the name of the people of the State of California, in the
superior court to enjoin the acts or practices or to enforce
compliance with this law or any rule or order hereunder. Upon a
proper showing a permanent or preliminary injunction,
restraining order or writ of mandate shall be granted and a
receiver or conservator may be appointed for the defendant or
the defendant's assets." As such, DBO would be able to
investigate violations to the extent that they are aware of
violations. DBO currently has an Enforcement Division that takes
enforcement actions and orders issued by the commissioner.
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