SB 919: Franchise Investment Law: franchise brokers.

Existing law, the Franchise Investment Law, generally provides for the regulation of the offer and sale of franchises and requires the Commissioner of Financial Protection and Innovation to maintain a risk-based process of reviewing franchise applications with emphasis on risks associated with the franchisors financial condition, the franchisors compliance record, and significant deficiencies with the franchisors application. The law requires specific written disclosures, and authorizes the sale of a franchise to be exempt from specified requirements if the franchisor meets certain disclosure and notice requirements. Existing law makes it unlawful for a person to offer or sell any franchise unless the franchise has been registered or exempted pursuant to these provisions.

This bill, contingent upon an appropriation by the Legislature, would require a franchise broker, as defined, to register with the commissioner before engaging in certain activities, including offering or selling a franchise in this state. This registration process would require the franchise broker to sign and verify a specified form, under penalty of perjury. The bill would make it unlawful for a franchise broker to offer or sell a franchise in this state unless the franchise broker is registered pursuant to these provisions. The bill would authorize the commissioner to summarily issue a stop order suspending or revoking a registration under these provisions and would prescribe a hearing process if the commissioner receives a written request for hearing from the franchise broker, as specified. The bill would impose certain recordkeeping and regulatory requirements on franchise brokers and would make various actions by franchise brokers unlawful. The bill would make these provisions operative on the later of: (1) July 1, 2026, or (2) the first anniversary of the date on which the above-described appropriation is made.

Existing law makes it unlawful for any person to effect or to attempt to effect a sale of a franchise unless, among other exceptions, the person is identified in an application or amended application with the commissioner, licensed by the Department of Real Estate as a real estate broker or real estate salesperson, or licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968.

This bill would add as an exception to the provisions described above a person registered as a franchise broker.

Under existing law, a person who offers or sells a franchise in violation of specified provisions is liable to the franchisee or subfranchisor, who may sue for specified damages.

This bill would make a franchise broker who offers or sells a franchise in violation of specified provisions liable to the franchisee or franchisor, who may sue for damages, as specified.

Existing law requires the commissioner to charge and collect specified fees in connection with an application for registration for, renewal of, and amendment of, a registration of an offer of franchises, as specified, which are credited to the Financial Protection Fund.

This bill would establish specified fees in connection with an application for registration or amendment of a registration as a franchise broker, and would require the commissioner to charge and collect those fees.

By expanding the crime of perjury, as specified above, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.