Division 5 added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971. Former Division 5, Uniform Act for Simplification of Fiduciary Security Transfers, comprising §§ 30000 to 30010, added by Stats. 1959, c. 708, p. 2681, § 1, was repealed by Stats. 1963, 819, p. 2010, § 34, effective Jan. 1, 1965. 31013. Subfranchisor. "Franchise" as including "area franchise". Franchise fee. Fraud; deceit. Offer or sale of, or offer to sell franchise made in this state. 31014. Order. Part 1 added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971. Rules and regulations governing this division, see 10 Cal.Adm. Code 310.000 et seq. Law Review Commentaries California franchise investment law. (1971) 46 S.Bar J. 50. Franchise Investment Law. John T. Pennebaker (Sept. 1970) 45 Los Angeles Bar Bull. 463. Franchise regulation. Don Augustine and Ronald R. Hrusoff (1970) 21 Hast. L.J. 1347. Raising venture capital. Ronald R. Hrusoff (1971) C.W.L.R. 383. Reflections on franchise regulation in California. (1970) 17 U.C.L.A. Law Rev. 1101. Library references Licenses 15(8). Trade Regulations 861 et seq. C.J.S. Trade-Marks, Trade-Names and Unfair Competition § 237 et seq. 1 See prepared statement of Philip F. Zeidman, Washington counsel, International Franchise Association, p. 26. §§ 30000-30010. Repealed. Stats. 1963, c. 819, p. 2010, § 34, effective Jan. 1, 1965 The repealed sections, added by Stats. Uniform Act for Simplification of Se1959, c. 708, p. 2681. § 1, comprised the curity Transfers. Table Showing Where the Subject Matter of the Repealed Sections of Division 5 Is Now Covered in the Commercial Code § 31000. Short title; references to "this law" This division may be known as the "Franchise Investment Law." References in this division to "this law" refer to the applicable provisions of this division. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) Law Review Commentaries Capital gains and sale of franchises. Waldo G. Rothenberg (1971) 57 A.B.A.J. 1003. § 31001. Legislative intent Current efforts in consumer protection in the business-investment area. H. Warren Siegel (1971) 8 San Diego L. Rev. 62. The Legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems both from an investment and a business point of view in the State of California. Prior to the enactment of this division, the sale of franchises was regulated only to the limited extent to which the Corporate Securities Law of 1968 applied to such transactions. California franchisees have suffered substantial losses where the franchisor or his representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee, and the prior business experience of the franchisor. It is the intent of this law to provide each prospective franchisee with the information regarding the franchisor-franchisee relationship, the details of the offered. Further, it is the intent of this law to prohibit the sale of franchises where such sale would lead to fraud or a likelihood that the franchisor's promises would not be fulfilled, and to protect the franchisor by providing a better understanding of the relationship between the franchisor and franchisee with regard to their business relationship. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) Law Review Commentaries The franchise concept; suggested in terpretations of the franchise investment law. (1972) 47 S. Bar J. 300. § 31002. Application of definitions Unless the context otherwise requires, the definitions in this part apply throughout this division. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) §31003. Advertisement "Advertisement" means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with an offer or sale of a franchise. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31004. Commissioner "Commissioner" means the Commissioner of Corporations. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31005. Franchise "Franchise" means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (a) A franchise is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and (b) The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and (c) The franchisee is required to pay, directly or indirectly, a franchise fee. (Added by Stats. 1970, c. 1400, p. 2645, § 3, operative Jan. 1, 1971.) Library references Law Review Commentaries The franchise concept; suggested interpretations of the franchise investment law. (1972) 47 S.Bar J. 300. § 31006. Franchisee Words and Phrases (Perm.Ed.) A "franchisee" is a person to whom a franchise is granted. (Added by Stats.1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm.Ed.) § 31007. Franchisor A "franchisor" is a person who grants a franchise. (Added by Stats.1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm.Ed.) § 31008. Area franchise "Area franchise" means any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for such right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor. (Added by Stats.1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm.Ed.) § 31009. Subfranchisor A "subfranchisor" is a person to whom an area franchise is granted. (Added by Stats.1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm.Ed.) § 31010. "Franchise” as including “area franchise" Where used in this law, unless specifically stated otherwise, "franchise" includes "area franchise." (Added by Stats.1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Payment of nominal franchise fee, exemption, see 10 Cal.Adm. Code 310.011. § 31011. Franchise fee "Franchise fee" means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for such goods and services. However, the following shall not be considered the payment of a franchise fee: (a) The purchase or agreement to purchase goods at a bona fide wholesale price. (b) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring such credit card. (c) Amounts paid to a trading stamp company licensed under Chapter 3 (commencing with Section 17750) of Part 3 of Division 7 of the Business and Professions Code by a person issuing trading stamps in connection with the retail sale of merchandise or service. (Added by Stats. 1970, c. 2646, § 3, operative Jan. 1, 1971.) Law Review Commentaries The franchise concept; suggested interpretations of the franchise investment law, (1972) 47 S. Bar J. 300. §31012. Fraud; deceit Library references Words and Phrases (Perm. Ed.) "Fraud" and deceit" are not limited to common law fraud or deceit. (Added by Stats. 1970, c. 1400, p. 264, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31013. Offer or sale of, or offer to sell franchise made in this state (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. (b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed. (c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state. (Added by Stats. 1970, c. 1400, p. 2646, § 3, operative Jan. 1, 1971.) Circulation of publication in state, see 10 Cal. Adm. Code 310.013. § 31014. Order Order" means a consent, authorization, approval, prohibition or requirement applicable to a specific case issued by the commissioner. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31015. Person Person" means an individual, corporation, a partnership, a joint venture, an association, a joint stock company, a trust or an unincorporated organization. (Added by Stats. 1970, c. 14, p. 2647, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31016. Publish "Publish" means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) 99-992 O 73 19 § 31017. Rule "Rule" means any published regulation or standard of general application issued by the commissioner. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31018. Sale; sell; offer; offer to sell (a) "Sale" or "sell" includes every contract or agreement of sale of, contract to sell, or disposition of, a franchise or interest in a franchise for value. (b) "Offer" or "offer to sell" includes every attempt to offer to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. The terms defined in this section do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) Library references Words and Phrases (Perm. Ed.) § 31019. State "State" means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) Sec. Part 2 added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971 CHAPTER 1. EXEMPTIONS 31101. Net worth; 25 franchises or more; conduct of business five years or more; written disclosure of information prior to contract. 31102. Sale not effected by or through franchisor. 31103. Application of division to bank credit card plans. Chapter 1 added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971 Law Review Commentaries Franchise regulation. Don Augustine and Ronald R. Hrusoff (1970) 21 Hast. L. J. 1347. § 31100. Rule of commissioner There shall be exempted from the provisions of Section 31110 any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of this law and the registration of which he finds is not necessary or appropriate in the public interest or for the protection of investors. (Added by Stats. 1970, c. 1400, p. 2647, § 3, operative Jan. 1, 1971.) § 31101. Net worth; 25 franchises or more; conduct of business five years or more; written disclosure of information prior to contract There shall be exempted from the provisions of Chapter 2 (commencing with Section 31110) of this part the offer and sale of a franchise if the franchisor: (a) Has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars ($5,000,000); or the franchisor has a net worth, according to its most recent audited financial statement, of not less than one million dollars ($1,000,000) and is at least 80 percent owned by a corporation which has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars ($5,000,000); and |