California’s Franchise Investment Law generally requires franchisors to register with the Department of Corporations before offering and selling franchises in California.
What Are Examples of Franchises?
Franchises generally fall into one of two categories:
- Business franchise – The franchisee receives the use of the trademarks, reputation trade secrets, copyrights, and marketing and service information of the franchisor. Examples include fast-food restaurants, tire repair shops and chain-convenience stores.
- Product distribution franchise – The franchisor distributes a particular product to franchisees. Examples include vending machines and car dealerships.
What Is the Franchise Disclosure Agreement?
The franchise disclosure document is a contract between the franchisor and franchisee that establishes the rights and obligations of both parties. It includes the following provisions:
- The franchise fee
- Franchisor restrictions placed on the business management structure of the franchisee
- Inventory charges
- Minimum income the franchisee must maintain and calculation date
- Length of the agreement
- A termination clause upon what event will the franchisor terminate the franchise agreement.
How to Expedite the Renewal of a California Franchise
California Law recommends that one takes certain steps in filing a renewal of one’s franchise. The renewal application must have:
- A Cover letter clearly stating the name of the applicant, the assigned file number (if known), and the franchisor’s fiscal year-end date.
- A Filing fee of $450, payable to the "California Department of Business Oversight"
- An Application Facing Page and a signed and notarized Signature Verification Page and Corporate Acknowledgment.
- A Signed and Notarized Consent to Service of Process (not required for California entities)
- Financial statements audited according to GAAP, with a manually signed consent by the CPA or firm that audited the financial statements
For more instructions in renewing a franchise in California, it is helpful to consult a business attorney who specializes in California franchise law.
Should I Contact a California Franchise Attorney?
A business attorney can help you determine if you qualify to become a franchisee. When undertaking a franchise, a lawyer can help you negotiate a franchise disclosure document that best suits the goals of the business. An attorney also may be useful when a franchisor does not abide by the franchise disclosure document, commits fraudulent practices, or otherwise demands unreasonable fees.