On September 24, 2024, Governor Gavin Newsom signed Senate Bill 919 ("SB 919"), amending California's Franchise Investment Law ("FIL") to regulate franchise brokers and franchise sales organizations. The law will take effect either one year after the California legislature authorizes funding for the bill through appropriations or July 1, 2026, whichever date is later.
Key Provisions of SB 919
- New registration requirements. Franchise brokers must register annually with the California Department of Financial Protection and Innovation ("DFPI") before offering or selling franchises.
- New disclosure requirements. Like the Federal
Trade Commission's disclosure requirements for franchisors,
franchise brokers must provide a Uniform Franchise Broker
Disclosure Document to assist prospective franchisees. This
document includes:
- A cover page created by the DFPI Commissioner explaining a broker's role generally.
- Specific information about the broker and their services, their professional experiences, any pending or recently resolved legal actions against the broker, and the franchises and industries they represent.
- Details on any compensation or incentives received for representing specific brands.
- Enforcement. Brokers who offer or sell a franchise in violation of the FIL may be liable for damages caused by the violation to the franchisee and/or franchisor.
Key Takeaways
The bill aims to protect prospective franchisees by increasing transparency on the broker's role in the franchise sales process. It follows moves by New York and Washington to impose registration requirements on third-party franchise agents like brokers. Companies in all parts of the franchise sales process should take note of these changes in California and of the larger trends regarding franchise brokers in the industry.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
