BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2637 (Wilk) - Franchise investments: offer and sale of
registered franchises: registration exemption
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: June 16, 2016 |Policy Vote: B. & F.I. 7 - 0, |
| | JUD. 7 - 0 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: No |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: August 1, 2016 |Consultant: Debra Cooper |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2637 would exempt a franchisor from the requirement
to re-register its franchise disclosure document with the
Department of Business Oversight (DBO) each time it negotiates
changes to the franchise agreement described in that disclosure
document with a franchisee, as specified.
Fiscal
Impact:
Unknown, but potentially significant costs to DBO to
investigate any reported violations. (State Corporations Fund)
Potential minor cost savings to DBO due to a reduction in
administrative workload for filing exempted franchise
disclosure documents. (State Corporations Fund)
AB 2637 (Wilk) Page 1 of
?
Background: The California Franchise Investment Law (CFIL) regulates
franchise investment opportunities by subjecting various aspects
of the franchise relationship to filing, review, and oversight
by DBO.
In 2004, the Business Law Section of the California State Bar
sponsored AB 2921 (Cox, Chapter 458, Statutes of 2004) to makes
changes to the CFIL to help franchisees by promoting
transparency. The Franchise Law Committee of the Business Law
Section of the California State Bar is sponsoring this bill to
mitigate unintended consequences of Corporations Code Section
31109.1, created by AB 2921, which hindered the ability of
franchisees and franchisors to negotiate franchise agreements.
The intended purpose of Section 31109.1 was to create full
disclosure to promote fairness among franchises. However,
according to the sponsors, Section 31109.1 actually served to
decrease the number of situations in which franchisors were
willing to negotiate with franchisees.
Proposed Law:
This bill would remove the following conditions that must be met
in order for a franchisor to claim an exemption from having to
amend its franchise registration in connection with a negotiated
sale:
Within five days, a prospective franchisee must receive
a summary description of each material negotiated term that
was negotiated by the franchisor for a California franchise
during the prior 12 months.
A prospective franchisee must receive a statement
indicating that copies of the negotiated terms are
available upon written request.
A prospective franchisee must receive, upon request, the
name, telephone number, and address of the representative
of the franchisor.
The negotiated terms, on the whole, confer additional
benefits on the franchisee.
AB 2637 (Wilk) Page 2 of
?
This bill would instead add to the requirements that a
franchisor must meet that the cover page, a state cover page, or
a state addendum of the disclosure document specifically states,
"You and the franchisor may agree to sign the forms of franchise
agreement and other agreements attached to this disclosure
document. However, California law does not prohibit you and the
franchisor from negotiating changes to the franchise agreement
and other agreements, nor does it require you or the franchisor
to negotiate any changes."
Related
Legislation: AB 2921 (Cox, Chapter 458, Statutes of 2004)
revises the conditions that are required to be satisfied for the
exemption from registration for a franchise agreement with an
existing franchisee of a franchisor.
Staff
Comments: The provisions of this bill have the potential to
create a new category of fraud and abuse 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 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.
-- END --
AB 2637 (Wilk) Page 3 of
?