California Franchise Law and FDD Registration | Internicola Law Firm

California Franchise Law and FDD Registration

California is a Franchise Registration State. The initial FDD registration fee is $675 and the annual renewal fee is $450.

California Franchise Law

California is a franchise registration state and under California’s Franchise Investment Law,  franchisors are required to register their FDD with the California Department of Business Oversight. Once registered, the FDD must be delivered and disclosed to a prospective franchisee no less than 14 days before the franchisee signs any agreement with the franchisor or pays any fees. The initial FDD registration fee is $675 and the FDD renewal fee is $450. Registration lasts for one year and requires annual renewal.

What qualifies as a “franchise” under California law is broadly defined to include all written or oral agreements where (a) an individual, referred to as a franchisee, is granted the right to sell or distribute goods or services under a “marketing plan or system,” (b) the operation of the franchisee’s business is substantially associated with or identified by the franchisor’s trademark, and (c) the franchisee is required to pay a franchise fee for the right to enter into the relationship. California law broadly defines what qualifies as a franchise fee and includes payment for goods and services.

To learn more about registering your FDD with the California Department of Business Oversight and how we can help get you registered, give us a call at (800) 976-4904 or contact us.

California Franchise Law and FDD Registration FAQs

Who Regulates Franchises in the State?

The Department of Business Oversight (DBO) regulates and oversees the enforcement of California’s Franchise Investment Law and the registration of FDDs.

What Should I Include with My Initial Franchise Application?

The initial franchise application should include:

Visit the California Department of Business Oversight Franchise Forms and Applications page to download many of the forms required for FDD registration and renewal.

What Are the Fees for Franchise Applications in California?

The initial FDD registration fee is $675 and the annual renewal fee is $450.

What Financial Statements Are Needed for Registration?

Your application should include the franchisor’s financial statements audited by an independent certified public accountant. The financial statements required to be filed include:

How Long Will It Take for My Registration Application to Be Approved?

How long it will take to obtain registration in California will depend on the quality and thoroughness of your FDD and registration application, and how quickly you respond to comment letters from the examining attorney assigned to review your application.

Assuming that you sent a complete FDD registration application, California applies an automatic effectiveness standard where, technically, your FDD registration will become effective thirty (30) business days after the filing of your registration application. However, in practice, you should expect that within this thirty (30) day period you will receive a comment letter from a senior counsel at the Department of Business Oversight. The comment letter will “toll” the automatic effectiveness of your registration application (i.e., you will not be registered yet) subject to you updating your FDD and application in response to the examining attorney’s comments.

Unless you receive a registration notice from the State of California, you should never assume that registration has occurred. Once registered, you will receive an “Order of Effectiveness” from the Department of Business Oversight. The Order of Effectiveness will note the date that your registration is effective and the date when your registration will expire.

Does California Impose Financial Assurance Requirements?

Yes, California is one of the franchise registration states that imposes financial assurance requirements. During the FDD registration and renewal process the California state examiner will review the financial statements of your franchise company and if the examiner determines that you possess insufficient shareholders’ equity or working capital your FDD registration will be conditioned on the satisfaction of a financial assurance requirement. Common financial assurance requirements include your agreement to defer the initial franchise fee until your franchisee has opened for business, escrowing the initial franchise fee, or the posting of a bond. Many times you will have the ability to choose between the three of these options however, in practice, deferral of the initial franchise fee is the most expedient and available option for start-up and emerging franchisors.

When Do I Have to Renew My FDD Registration?

You must renew your FDD registration on an annual basis and before the date that your registration expires, which is typically on April 20th. The Order of Effectiveness that was issued to you when you obtained your registration the prior year will contain the date that your registration expires. Under Section 31121 of the California Franchise Investment Law, your renewal application must be filed before your registration expires. Otherwise, you will be required to file a new / initial application for registration, which requires payment of a higher filing fee.

Are there Exemptions to California Registration?

Yes, in certain instances there are exemptions to the registration requirements of California’s Franchise Investment Law.

Exemptions include limited circumstances (subject to qualification) involving the “net worth” of the franchisee; the franchise qualifying as a “fractional franchise”; or the “experience” of the franchisee. Before relying on claimed or perceived FDD registration exemption, you must carefully evaluate whether you can apply the exemption with an experienced franchise lawyer.

Learn more about California’s registration exemptions.

What If the Franchise Sale Occurs Outside of the State?

Section 31105 of the California Franchise Investment Law states:

“Any offer, sale, or other transfer of a franchise, or any interest in a franchise, to a resident of another state or any territory or foreign country, shall be exempted from the provision of Chapter 2 (commencing with Section 31110) of this part, if all locations from which sales, leases or other transactions between the franchised business and its customers are made, or goods or services are distributed, are physically located outside this state.”

Where Is the Registration Application Filed?

The registration application should be mailed to the following address, where the California Department of Corporations will either approve or deny the franchise registration application:

California Department of Business Oversight
320 West 4th Street, Suite 750
Los Angeles, CA 90013-2344

Or

California Department of Business Oversight
71 Stevenson Street, Suite 2100
San Francisco, CA 94105-2908

Or

California Department of Business Oversight
1515 K Street, Suite 200
Sacramento, CA 95814-4052

Need assistance registering your FDD? Give us a call at (800) 976-4904 or fill out a contact form to learn more.

Useful Links Concerning California Franchise Laws

More Information

Visit our interactive franchise registration map and learn more about state franchise laws, FDD registration states, and required franchise filings.

To learn more about how we can help you with your California FDD registration and registering your FDD throughout the United States, contact us at (800) 976-4904 or contact us online

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