California Legislature—2015–16 Regular Session

Assembly BillNo. 2637


Introduced by Assembly Member Wilk

February 19, 2016


An act to amend Section 31109.1 of the Corporations Code, relating to business.

LEGISLATIVE COUNSEL’S DIGEST

AB 2637, as introduced, Wilk. Franchise investments: offer and sale of registered franchises: registration exemption.

The Franchise Investment Law generally regulates the offer and sale of franchises and provides for oversight of these transactions by the Commissioner of Business Oversight. The law prohibits, among other things, the offer or sale of a franchise that is not registered with the commissioner, unless exempted from this registration requirement. The law exempts from this registration requirement the offer and sale of a franchise on terms that are different from the terms of a registered offer, if certain conditions are met. Those conditions include, among others, that a prospective franchisee receives information regarding terms the franchisor negotiated during the previous 12 months, as specified, and that the negotiated terms, on the whole, confer additional benefits on the franchisee.

This bill would modify the conditions for an exemption to the registration requirement by removing these 2 conditions and instead imposing the condition that a disclosure document states that California law does not prohibit a franchisor from negotiating, or require a franchisor to negotiate, the standard franchise agreement contained in the disclosure document. The bill would also make technical and conforming changes to this modification, including, among others, the removal of authority for the commissioner to prescribe by rule or order the format and content for a franchisor to provide information regarding terms the franchisor negotiated during the previous 12 months.

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

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

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SECTION 1.  

Section 31109.1 of the Corporations Code is
2amended to read:

3

31109.1.  

(a) There shall be exempted from the provisions of
4Chapter 2 (commencing with Section 31110) thebegin delete offer andend delete sale of
5a franchise registered under Section 31111, 31121, or 31123 on
6terms different from the terms of the offer registered thereunder
7if all of the following requirements are met:

8(1) The initial offer is the offer registered under Section 31111,
931121, or 31123.

begin delete

10(2) The prospective franchisee receives all of the following in
11a separate written appendix to the franchise disclosure document:

12(A) A summary description of each material negotiated term
13that was negotiated by the franchisor for a California franchise
14during the 12-month period ending in the calendar month
15immediately preceding the month in which the negotiated offer or
16sale is made under this section.

17(B) A statement indicating that copies of the negotiated terms
18are available upon written request.

19(C) The name, telephone number, and address of the
20representative of the franchisor to whom requests for a copy of
21the negotiated terms may be obtained.

end delete
begin insert

22(2) The disclosure document states that California law does not
23prohibit a franchisor from negotiating, or require a franchisor to
24negotiate, the standard franchise agreement contained in the
25disclosure document.

end insert

26(3) The franchisor certifies or declares in an appendix to its
27application for renewal that it has complied with all of the
28requirements of this section, in the event this exemption is claimed.

begin delete

29(4) The negotiated terms, on the whole, confer additional
30benefits on the franchisee.

end delete
begin delete

P3    1(b) The franchisor shall provide a copy of the negotiated terms
2described in subdivision (a) to the prospective franchisee within
3five business days following the request of the franchisee.

end delete
begin delete

4(c)

end delete

5begin insert(b)end insert The franchisor shall maintain copies of all material
6negotiated terms for which this exemption is claimed for a period
7of five years from the effective date of the first agreement
8containing the relevant negotiated term. Upon the request of the
9commissioner, the franchisor shall make the copies available to
10the commissioner for review. begin delete For purposes of this section, the
11commissioner may prescribe by rule or order the format and content
12of the summary description of the negotiated terms required by
13subparagraph (A) of paragraph (2) of subdivision (a).end delete

begin delete

14(d)

end delete

15begin insert(c)end insert For purposes of this section, “material” means that a
16reasonable franchisee would view the terms as important in
17negotiating the franchise.



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