Understanding California’s Franchise Investment Law

If you are interested in buying or selling a franchise in California, it is important to be familiar with the applicable law before taking action.  California franchise law is largely governed by the state’s Franchise Investment Law, which was enacted in 1970.

One of the major requirements of California’s Franchise Investment Law is that franchisors must register with the California Department of Business Oversight before selling or offering for sale franchises in California. An “offer” or “offer to sell” includes every attempt to solicit an offer to buy or offer to sell a “franchise or interest in a franchise for value.”

The Franchise Investment Law also requires that franchisors provide franchisees with final franchise agreements as well as registration disclosure documents at least ten business days before the sale of a franchise. The purpose of these pre-sale disclosures is to provide, fully and truthfully, material information about the franchisor and its franchise offering to the prospective franchisee prior to the purchase.

Recently, the California Legislature attempted to amend the Franchise Investment Law.  Senate Bill 610 (SB 610), which was approved by the State Senate and Assembly, would have prevented a franchisor from severing licensing agreements with franchisees unless the franchisor could demonstrate that a “substantial and material breach … of a lawful requirement” of the agreement took place. In other words, it would have made it more difficult for franchisor companies to end licensing agreements with franchisees.  However, California’s Governor, Jerry Brown, vetoed the bill, stating that it would change the well-established “good cause” standard already in law to an untested benchmark of “substantial and material breach” that is not found in California or other states.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

Comments are closed.