S.B. 919 would extend disclosure requirements to third-party franchise sellers in California</span></em></p>
WASHINGTON</strong> – The International Franchise Association (IFA) today applauded passage of California Senate Bill 919, legislation extending disclosure requirements to third-party franchise sellers like brokers, broker networks and franchise sales organizations. The bill passed the California Senate 36-1, following months of IFA advocacy promoting the legislation to strengthen the franchise relationship by improving information available to prospective franchisees. </span></p>
“Third-party franchise sellers play a vital role in the franchise model, and this legislation provides greater clarity of the various parties engaged in the franchise sales process to prospective franchisees,” said IFA President and CEO Matt Haller. “Responsible Franchising includes improved disclosure and ultimately leads to stronger franchise relationships in the long term. This bill is a critical step forward in providing franchisees with more of the information they need before making an investment – with only minimal resources necessary to implement the new requirements.”</span></p>
Introduced by California State Sen. Thomas Umberg (D-34), </span>S.B. 919</span></a> amends the California Franchise Investment Law to add annual registration and presale disclosure requirements for third-party franchise sellers. The legislation builds on IFA’s longstanding principles of </span>Responsible Franchising</span></a>, working to strengthen the franchise relationship where it begins—at the start of the franchise sales process. </span></p>
IFA Director of State and Local Government Relations Matthew Kagel </span>testified</span></a> before the California Senate Banking Committee on April 17, 2024, in favor of the legislation, stating, “Third-party franchise sellers operate without necessary oversight, leaving prospective franchisees and franchisors vulnerable to misinformation and in the dark about information that is critical to making sound investment decisions. SB 919 addresses this issue by mandating minimal yet effective disclosures from third party franchise sellers to prospective franchisees and registration with the Commission to provide visibility to the franchise sales activity conducted in the state.”</span></p>
Specifically, proposed amendments to the CFIL would require third-party franchise sellers to:</span></p>
- File an annual registration similar to what currently is required in New York and Washington and pay the applicable fee.</span></li>
- Deliver to prospective franchisees a brief disclosure document that includes: (1) information about third party franchise sellers generally and questions a prospective franchisee may ask their third party franchise seller; (2) contact information and state of formation (if applicable) of third party franchise seller; (2) professional experience (past five years) and any certifications or continuing education completed; (3) litigation history; (4) types of services performed and general compensation structure; (5) industries represented and number of brands within each industry; and (6) list of franchisees sold during the prior calendar year.</span></li></ul>
The legislation will now be considered by the Assembly.</span></p>
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About the International Franchise Association:</div>Celebrating over 60 years of excellence, education, and advocacy, the International Franchise Association (IFA) is the world’s oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations, and educational programs to protect, enhance and promote franchising and the approximately 806,270 franchise establishments that support nearly 8.7 million direct jobs, $858.5 billion of economic output for the U.S. economy, and almost 3 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees, and companies that support the industry in marketing, law, technology, and business development.</span></p></div>
- Deliver to prospective franchisees a brief disclosure document that includes: (1) information about third party franchise sellers generally and questions a prospective franchisee may ask their third party franchise seller; (2) contact information and state of formation (if applicable) of third party franchise seller; (2) professional experience (past five years) and any certifications or continuing education completed; (3) litigation history; (4) types of services performed and general compensation structure; (5) industries represented and number of brands within each industry; and (6) list of franchisees sold during the prior calendar year.</span></li></ul>