California Franchise Registration
By Matt Dickstein
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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. 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. 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.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.