For Franchisors offering and selling franchises in the State of California, registering your FDD with the California Department of Business Oversight is a critical and necessary requirement; however, in certain, extremely limited instances, there may be circumstances where you may sell a franchise in California without first registering your FDD. Keep in mind that these exemptions are “registration exemptions” and do not negate the fact and absolute requirement that you disclose your franchisee prospects with a properly issued Franchise Disclosure Document and that you otherwise comply with the Federal Franchise Laws.
Warning: The decision and determination as to whether or not a registration exemption applies can only be determined by an experienced franchise lawyer after reviewing the particular facts related to your franchise system, your prospective franchisee and your potential franchise sale, and, after a full review and evaluation of California’s franchise laws. This article does not address all of the required facts, circumstances and laws that must be evaluated prior to making any decision about a franchise registration exemption. You cannot base any decision as to whether or not an exemption may or may not apply based on this article.
California Corporations Code Section 31110 is the starting point for understanding California’s franchise registration requirement, stating:
“…it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part.”
Unless a specific exemption applies, i.e., an exemption that specifically negates the registration mandate of Section 31110, as a franchisor, you must register your franchise with the state before “offering or selling any franchise” in the State of California.
Some “potential” registration exemptions to consider, include:
To invoke the experienced franchisee registration exemption, you must complete and file a Section 31106 Franchise Registration Exemption Notice which must be filed with the California Department of Business Oversight and requires payment of a $450 filing fee.
To invoke the fractional franchise registration exemption, you must complete and file a Section 31108 Franchise Registration Exemption Notice which must be filed with the California Department of Business Oversight and requires payment of a $450 filing fee.
To learn more about California’s Franchise Registration requirements, click here.
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