IFA Endorses California Legislation to Improve Disclosures to Aid Prospective Franchise Owners

March 19, 2024

S.B. 919 amends California Franchise Investment Law to require third-party franchise sellers to complete registration and comply with disclosure requirements

WASHINGTON, D.C., March 19, 2024 – The International Franchise Association (IFA) today endorsed legislation introduced in California requiring new registration and disclosure for third-party franchise sellers. Sponsored by California State Sen. Thomas Umberg (D-34), S.B. 919 adds additional transparency to the franchise sales process by amending the California Franchise Investment Law (CFIL) to require third-party franchise sellers to file a sellers disclosure form and provide standardized disclosures to prospective franchisees.

“IFA was founded on the principle that responsible franchising leads to strong franchise relationships, and pre-sale disclosures are the bedrock of that principle,” said Matt Haller, President and CEO of IFA. “While third-party franchise sellers are critical to the growth of franchise brands, it is equally, if not more important, that prospective franchisees have clarity about the roles of franchise brokers and outside sales organizations so they can make an informed purchasing decision that best aligns their interests with a brand. By adding registration and disclosure requirements for third-party franchise sellers to those already required by franchise brands selling franchises in California, this legislation provides visibility into the various parties that engage with a prospective franchisee during the sales process and a pathway for recovery against bad actors, while requiring minimal resources to implement the registration and disclosure requirements.”

Specifically, proposed amendments to the CFIL would require of third-party franchise sellers:

  • Annual registration by third party franchise sellers similar to what currently is required in New York and Washington and payment of the applicable fee.
  • Delivery by third party franchise sellers of a brief disclosure document that includes: (1) information about third party franchise sellers generally and questions you may ask your 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) contact information for franchisees placed within the past year and number of units sold to each.

A summary of the legislation is available here.

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About The International Franchise Association:

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 supplier companies that support the industry.