AB 2637, as amended, 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 thatbegin insert the cover page, a state cover page, or a state addendum ofend insert a disclosure document include a specific statement regarding the ability to agree to the franchise agreement and to negotiate changes to the franchise agreement and other agreements. 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:
Section 31109.1 of the Corporations Code is
2amended to read:
(a) There shall be exempted from the provisions of
4Chapter 2 (commencing with Section 31110) the sale of a franchise
5registered under Section 31111, 31121, or 31123 on terms different
6from the terms of the offer registered thereunder if all of the
7following requirements are met:
8(1) The initial offer is the offer registered under Section 31111,
931121, or 31123.
10(2) The coverbegin delete pageend deletebegin insert page, a state cover page, or a state
11addendumend insert of the disclosure document specifically
states, “You
12and the franchisor may agree to sign the forms of franchise
13agreement and other agreements attached to this disclosure
14document. However, California law does not prohibit you and the
15franchisor from negotiating changes to the franchise agreement
16and other agreements, nor does it require you or the franchisor to
17negotiate any changes.”
18(3) The franchisor certifies or declares in an appendix to its
19application for renewal that it has complied with all of the
20requirements of this section, in the event this exemption is claimed.
21(b) The franchisor shall maintain copies of all material
22negotiated terms for which this exemption is claimed for a period
23of five years from the effective date of the agreement containing
24the relevant negotiated term. Upon the request of
the commissioner,
25the franchisor shall make the copies available to the commissioner
26for review.
P3 1(c) For purposes of this section, “material” means that a
2reasonable franchisee would view the terms as important in
3negotiating the franchise.
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