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California Franchise
Registration
California requires franchise
registration. You must register with the California
Department of Corporations if you want to sell franchises in
California. In this article I give you a brief overview of
the process for registering a franchise in California.
Filing of
the Registration Package. A California franchise
registration requires a lot of documents, the most important
being:
1. The application form,
2. Your Uniform Franchise Disclosure
Document (UFDD, formerly the UFOC), and
3. Financial statements (in most
cases, audited financials).
The registration fee is $675.
Impound for
Start-up Capital. Your financial statements must
show sufficient liquid capital to meet your obligations to
your franchisees as stated in the UFDD and your Franchise
Agreement. The CA Department of Corporations does not want
you to rely on franchisee fees to meet your initial
obligations to the franchisees (as this practice can develop
into a pyramid scheme).
If your financial statements do not
show sufficient liquid capital, the Department might require
that you file a guaranty from another company which has the
required capital, or the Department might require an impound
of all fees collected from each franchisee in CA. In the
alternative, sometimes the Department will accept your
promise not to collect fees from a CA franchisee until after
the franchise unit is open for business.
When Does
Your Registration Become Effective? By law, an
initial franchise registration automatically becomes
effective at noon on the 15th business day after filing.
The law intends to put a deadline on how long government
clerks can hold up your application.
But the law never applies to the
king. Clerks at the Department avoid the deadline by
requiring that you, the franchisor, waive the deadline. If
you refuse, the clerk just issues a stop order on your
registration. A stop order implies that serious structural
problems exist with your franchise system, and in any case
with a stop order, the Department has no deadline for acting
on your application. With a stop order you are stuck in
purgatory. Hence you sign the waiver and wait one or two
months for approval.
Order of
Effectiveness. You are approved to sell
franchises in CA on the date the Department records an order
of effectiveness in its index. You then state your CA
effective date on your UFDD’s federal and state cover pages,
and you’re free to sell.
Term of
Registration. A CA franchise registration
usually expires 110 days after your fiscal year-end. Most
registrations have a term of about a year, with the
exception of your initial term which might have a term of a
little less than a year depending on when your fiscal year
ends.
That's it for this quick overview of franchise registration
in California. I’ve tried to make this article as simple as possible, but
please remember that
California franchise registration is very complex. You need
a competent franchise attorney to help you.
If you want
to read more about franchising, try my main page
Franchise
Attorney. From there you can link to other
pages and articles of interest.
Call
me to schedule a legal consultation:
510-796-9144
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