California’s Franchise Investment Law generally requires franchisors to register with the Department of Corporations before offering and selling franchises in California.
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.
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.
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.
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.