SECTIONS 31110-31125 - California Statutes

CORPORATIONS CODE

SECTION 31110-31125

31110. On and after April 15, 1971, it shall be unlawful for any
person to offer or sell any franchise in this state unless the offer
of the franchise has been registered under this part or exempted
under Chapter 1 (commencing with Section 31100) of this part.

31111. (a) The application for registration of an offer shall be
filed with the commissioner upon the Uniform Franchise Registration
Application, as identified, modified, and supplemented by rule of the
commissioner.
(b) An authorization for the commissioner to examine the
registrant's financial records of the sale of the franchise pursuant
to Section 7473 of the Government Code shall be filed with the
application.

31112. Any application or amendment under this law shall be signed
and verified by the franchisor or by the subfranchisor. Such
verification shall be in the same manner provided in the Code of
Civil Procedure for the verification of pleadings.

31113. If the commissioner finds that it is necessary and
appropriate for the protection of prospective franchisees or
subfranchisors because the applicant has failed to demonstrate that
adequate financial arrangements have been made to fulfill the
franchisor's obligations to provide real estate, improvements,
equipment, inventory, training, or other items included in the
offering, the commissioner may by rule or order require the escrow or
impound of franchisee fees and other funds paid by the franchisee or
subfranchisor until such obligations have been satisfied. At the
option of the franchisor, the franchisor may furnish a surety bond as
provided by rule of the commissioner.

31114. The application for registration shall be accompanied by a
proposed offering circular, which shall contain the material
information set forth in the application for registration, as
specified by rule of the commissioner, and such additional
disclosures as the commissioner may require. The offering circular
shall recite in bold type of not less than 10-point type that
registration does not constitute approval, recommendation, or
endorsement by the commissioner.

31115. The commissioner may summarily issue a stop order denying
the effectiveness of or suspending or revoking effectiveness of any
registration if the commissioner finds:
(a) That there has been a failure to comply with any of the
provisions of this law or the rules of the commissioner pertaining
thereto.
(b) That the offer or sale of the franchise would constitute
misrepresentation to, or deceit or fraud of the purchasers, or that,
in the case of a franchise other than a subfranchise, a major
inducement to prospective franchisees is fees or other compensation
from participation in the sale of additional franchises.
(c) That the applicant has failed to comply with any rule or order
of the commissioner issued pursuant to Section 31113.
(d) That any person identified in the application or any officer
or director of the franchisor, whether or not identified in the
application, meets one or more of the following conditions, and the
involvement of this person in the sale or management of the franchise
creates an unreasonable risk to prospective franchisees:
(1) Has been convicted of a felony, or pleaded nolo contendere to
a felony charge, or held liable in a civil action by final judgment
if the felony or civil action involved fraud, embezzlement,
fraudulent conversion, or misappropriation of property.
(2) Is subject to any currently effective order of the Securities
and Exchange Commission or the securities administrator of any state
denying registration to or revoking or suspending the registration of
the person as a securities broker or dealer or investment adviser or
is subject to any currently effective order of any national
securities association or national securities exchange (as defined in
the Securities and Exchange Act of 1934) suspending or expelling the
person from membership in the association or exchange.
(3) Is subject to any currently effective order or ruling of the
Federal Trade Commission.
(4) Is subject to any currently effective injunctive or
restrictive order relating to business activity as a result of an
action brought by any public agency or department, including, without
limitation, actions affecting a license as a real estate broker or
sales person.

31116. (a) Except as provided in subdivision (b), if no stop order
under Section 31115 is in effect under this law, registration of the
offer of franchises automatically becomes effective at 12 o'clock
noon, California time, of the 15th business day after the filing of
the application for registration or the last amendment thereto, or at
such earlier time as the commissioner determines.
(b) With respect to any application for registration or the last
amendment thereto filed between January 1, 1971, and March 15, 1971,
if no stop order under Section 31115 is in effect under this law,
registration becomes effective on April 15, 1971; with respect to any
application filed after March 15, 1971 and before May 10, 1971, if
no stop order under Section 31115 is in effect under this law,
registration becomes effective on June 1, 1971, or the 15th business
day after the filing, whichever is the later, or at such earlier time
as the commissioner determines.

31117. Upon the entry of a stop order under Section 31115 the
commissioner shall promptly notify the applicant that it has been
entered and of the reasons therefor and that upon receipt of written
request the matter will be set down for hearing to commence within 15
business days after such receipt unless the applicant consents to a
later date. If no hearing is requested within 30 days after receipt
of the notice and none is ordered by the commissioner, the order will
remain in effect until it is modified or vacated by the
commissioner. If a hearing is requested or ordered, the commissioner,
after notice and hearing in accordance with the provisions of
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, in connection with which the
commissioner shall have all of the powers granted thereunder, may
modify or vacate the order or extend it until its final
determination.

31118. The commissioner may vacate or modify a stop order if he
finds that the conditions which caused its entry have changed or that
it is otherwise in the public interest to do so.

31119. (a) It is unlawful to sell any franchise in this state that
is subject to registration under this law without first providing to
the prospective franchisee, at least 14 days prior to the execution
by the prospective franchisee of any binding franchise or other
agreement, or at least 14 days prior to the receipt of any
consideration, whichever occurs first, a copy of the offering
circular, together with a copy of all proposed agreements relating to
the sale of the franchise.
(b) Nothing in this division shall be construed to prevent a
franchisor from providing copies of the offering circular documents
to prospective franchisees through electronic means pursuant to any
requirements or conditions that may be imposed by rule or order of
the commissioner.

31120. A franchise offering shall be deemed duly registered for a
period of one year from the effective date of the registration,
unless the commissioner by order or rule specifies a different
period.

31121. The registration may be renewed for additional periods of
one year each, unless the commissioner by rule or order specifies a
different period, by submitting to the commissioner a registration
renewal statement no later than 15 business days prior to the
expiration of the registration unless such period is waived by order
of the commissioner. If no stop order or other order under Section
31115 is in effect under this law, registration of the offer of the
franchises automatically becomes renewed effective at 12 o'clock
noon, California time, of the date on which the prior registration is
due to expire, or at such earlier time as the commissioner
determines.

31122. The registration renewal statement shall be in the form and
content prescribed by the commissioner, and shall be accompanied by a
proposed offering prospectus. Each such registration renewal
statement shall be accompanied by the fee prescribed in Part 5
(commencing with Section 31500) of this division.

31123. A franchisor shall promptly notify the commissioner in
writing, by an application to amend the registration, of any material
change in the information contained in the application as originally
submitted, amended or renewed. The commissioner may by rule further
define what shall be considered a material change for such purposes,
and the circumstances under which a revised offering prospectus must
accompany such application.

31124. An amendment to an application filed after the effective
date of the registration of the sale of franchises, if such amendment
is approved by the commissioner, shall become effective on such date
as the commissioner may determine, having due regard for the public
interest and the protection of franchisees.

31125. (a) An application for registration of a material
modification of an existing franchise or of existing franchises shall
be in a form and contain information as the commissioner may by rule
prescribe, and shall be accompanied by a proposed disclosure form as
specified in subdivision (b). The application may be included with
an application pursuant to Section 31111 or 31121.
(b) Except as provided in subdivisions (c) and (d), it is unlawful
to solicit the agreement of a franchisee to a proposed material
modification of an existing franchise without first delivering to the
franchisee a written disclosure, in a form and containing
information as the commissioner may by rule or order require,
identifying the proposed modification, either five business days
prior to the execution of any binding agreement by the franchisee to
the modification or containing a statement that the franchisee may,
by written notice mailed or delivered to the franchisor or a
specified agent of the franchisor within not less than five business
days following the execution of the agreement, rescind the agreement
to the material modification.
(c) Any modification of a franchise agreement with an existing
franchisee of a franchisor shall be exempted from the provisions of
this chapter, if all of the following are met:
(1) The franchisee receives the complete written modification at
least five business days prior to the execution of a binding
agreement, or providing that the franchisee may, by written notice
mailed or delivered to the franchisor or a specified agent of the
franchisor within not less than five business days following the
execution of the agreement, rescind the agreement to the material
modification; provided (A) the agreement is not executed within 12
months after the date of the franchise agreement, and (B) the
modification does not waive any right of the franchisee under the
California Franchise Relations Act (Chapter 5.5 (commencing with
Section 20000) of Division 8 of the Business and Professions Code),
but the modification may include a general release of all known and
unknown claims by a party to the modification.
(2) The modification meets one of the following:
(A) The proposed modification is in connection with the resolution
of a bona fide dispute between the franchisor and the franchisee or
the resolution of a claimed or actual franchisee or franchisor
default, and the modification is not applied on a franchise
systemwide basis at or about the time the modification is executed. A
modification shall not be deemed to be made on a franchise
systemwide basis if it is offered on a voluntary basis to fewer than
25 percent of the franchisor's California franchises within any
12-month period.
(B) The proposed modification is offered on a voluntary basis to
fewer than 25 percent of the franchisor's California franchises
within any 12-month period, provided each franchisee is given a right
to rescind the modification agreement if the modification is not
made in compliance with paragraph (1) of subdivision (c).
(d) Any modification of a franchise agreement with an existing
franchise of a franchisee shall be exempted from this chapter if the
modification is offered on a voluntary basis and does not
substantially and adversely impact the franchisee's rights, benefits,
privileges, duties, obligations, or responsibilities under the
franchise agreement.
(e) For purposes of this section, "California franchise" means:
(1) an existing franchise of a franchisee with any location in this
state from which sales, leases, or other transactions between the
franchised business and its customers are made or goods or services
are distributed, or (2) an existing franchise of a franchisee that is
a resident of this state and that owns, controls, or has an equity
interest in the franchise.
(f) A franchisor shall not make modifications in consecutive years
for the purpose of evading the 25 percent requirements set forth
above.