BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1782|
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THIRD READING
Bill No: AB 1782
Author: Maienschein (R)
Amended: 3/10/16 in Assembly
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/15/16
AYES: Glazer, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE JUDICIARY COMMITTEE: 7-0, 6/28/16
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
ASSEMBLY FLOOR: 76-0, 4/14/16 (Consent) - See last page for
vote
SUBJECT: Franchises: offer to sell: trade show
SOURCE: Franchise Law Committee of the Business Law Section
of the California State Bar
DIGEST: This bill allows franchisors to display their concepts
at franchise trade shows in California, without first having to
register their offerings with the Department of Business
Oversight (DBO), as specified.
ANALYSIS:
Existing law:
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1)Provides for the Franchise Investment Law (FIL; Corporations
Code Section 31000 et seq.), administered by DBO.
2)Makes it unlawful for any person to offer or sell any
franchise in this state unless the offer has been registered
under the FIL or is exempt (Corporations Code Section 31110).
3)Requires franchisors subject to the FIL to register their
offerings by submitting a disclosure document to DBO
containing specified information about their businesses and
the franchises they are offering, and providing a copy of that
disclosure document, together with copies of all agreements
pertaining to a prospective franchise sale, to a prospective
franchisee at least 14 calendar days before entering into any
contract with or receiving any payment from a prospective
franchisee (Corporations Code Sections 31114 and 31119).
4)Contains several exemptions from the FIL (Corporations Code
Sections 31100 through 31109.1). Some of the entities
exempted from the FIL include franchisors with high net worth
and significant experience conducting the businesses they are
franchising (Corporations Code Sections 31101 and 31106) and
franchisors who sell franchises exclusively to persons with
high net worth and knowledge and experience in financial and
business matters, as specified (Corporations Code Section
31109).
This bill:
1)Defines a franchise trade show as an event in this state,
displaying multiple franchise brands and open to multiple
franchisors, that is advertised to, and invites the general
public, and where franchisors who satisfy the reasonable
criteria of the franchise trade show's organizer may secure a
space from which they can inform those in attendance about
their existing and prospective products, services, or systems.
2)Provides that an offer to sell a franchise is not made, merely
because a franchisor or prospective franchisor, who has not
registered an offering under the provisions of the FIL, offers
information about its products, services, or system to the
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general public at a franchise trade show, as long as the
franchisor complies with the requirements described
immediately below.
3)Requires a franchisor or prospective franchisor to do all of
the following in order to utilize the safe harbor from
registration described immediately above:
a) Notify the Commissioner of DBO (commissioner), in a form
established by the commissioner, of its intent to attend
and display its concept at a franchise trade show at least
14 days before the show. This notice must include all of
the following, at a minimum: franchise concept brand name,
brief description of the potential franchise offering,
legal name and address of the franchisor or prospective
franchisor, names of the principal officers of the
franchisor or prospective franchisor, and address at which
the franchisor or prospective franchisor may be served
legal process.
b) Conspicuously post, in public view within its franchise
trade show booth, a notice, in a form established by the
commissioner, which states the following, at a minimum:
the franchisor or prospective franchisor is not offering a
franchise for sale in California, and is not legally able
to offer such a franchise for sale; 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.
Background
This bill is sponsored by the Franchise Law Committee of the
Business Law Section of the California State Bar to help
franchisors assess the viability of their franchise concepts by
displaying at trade shows, without first having to register
their offerings with DBO. Under existing law, DBO interprets
the act of exhibiting at a franchise trade show in California as
an offer to sell a franchise under the FIL, which requires the
exhibiter to register its franchise offering with DBO or meet
the requirements of a FIL exemption. This bill's sponsor
asserts that DBO's interpretation of existing law creates a
barrier for franchisors interested in assessing the public's
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interest in their franchise concepts by exhibiting at trade
shows in California, before undertaking what the sponsor asserts
is a cumbersome and costly registration process. This bill
amends the FIL to permit a franchisor that does not have a
franchise registration or disclosure document on file with DBO
to exhibit at a franchise trade show in California, for the
limited purpose of determining whether there is sufficient
interest in its franchise to warrant the time and expense of
preparing a franchise disclosure document and registering its
franchise offering.
Under the provisions of this bill, an unregistered franchisor
will be able to exhibit at a franchise trade show, only if that
franchisor provides the DBO with prior notice of its intent to
participate in the trade show, posts a conspicuous notice at its
trade show booth indicating that it does not have a currently
registered disclosure document on file with DBO and is not
offering franchises for sale in California, and provides people
with instructions about how to file a complaint about an
unregistered offering with DBO.
Comments
This bill is intended to alleviate a regulatory barrier that
currently hampers franchisors attempting to test out new
franchise concepts in California or test out California's
appetite for an existing franchise concept that is available
elsewhere. This bill's sponsor asserts that the time and
expense of registering a franchise offering under the FIL may be
wasted, if a franchisor discovers there is no interest in its
franchise system or that it must make substantial changes to
that system before it will be viable. This bill facilitates a
franchisor's ability to assess its concepts, before it prepares
and files its registration and disclosure documents. This bill
also addresses a problem that has been encountered by some
franchisors, who have missed trade show registration deadlines
while waiting for DBO to act on their registration applications,
and in doing so have lost an opportunity to evaluate the
viability of their franchise concepts in the state.
This bill's sponsor asserts that providing franchisors with the
ability to make adjustments to their franchise system, before
selling franchises in California, not only benefits franchisors,
but also benefits franchisees and vendors who sell to the
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franchisees. By facilitating a franchisor's abilities to test
the market in California, this bill will increase franchisees'
knowledge of the franchise opportunities that are or may
potentially become available in California. Furthermore, by
allowing more franchisors to display their offerings at trade
shows, this bill has the potential to increase competition among
franchisors for franchisees' business.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, this bill will
result in unknown, moderate costs to DBO to create an
application form for franchisors and prospective franchisors and
unknown, but potentially significant costs to DBO to investigate
any reported violations of the provisions of this bill.
SUPPORT: (Verified8/11/16)
Franchise Law Committee of the Business Law Section of the
California State Bar (source)
International Franchise Association
OPPOSITION: (Verified8/11/16)
None received
ASSEMBLY FLOOR: 76-0, 4/14/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Jones, Jones-Sawyer, Kim, Lackey,
Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty,
Medina, Mullin, Obernolte, O'Donnell, Olsen, Patterson, Quirk,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
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Wood, Rendon
NO VOTE RECORDED: Irwin, Levine, Melendez, Nazarian
Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
8/15/16 20:26:57
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