S.B. 919 would extend disclosure requirements to third-party franchise sellers in California and promote responsible franchising; Bill now heads to the governor’s desk for signature

WASHINGTON – The International Franchise Association (IFA) today applauded passage of California Senate Bill 919, bipartisan legislation extending disclosure requirements to third-party franchise sellers such as brokers, broker networks, and franchise sales organizations. The 75-0 Assembly vote follows months of IFA advocacy, with the support of the Coalition of Franchisee Associations (CFA) and American Association of Franchisees & Dealers (AAFD), promoting the legislation to strengthen the foundation on which the franchise relationship begins by improving information available to prospective franchisees. The bill passed the Senate in May and now heads to Gov. Gavin Newsom’s desk for signature.

“A bedrock of IFA’s mission is promoting due diligence and transparency in the presale process,” said IFA President and CEO Matt Haller. “Given the increasingly prevalent role of third-party sellers in recent years, IFA was proud to lead all stakeholders in franchising to build support for this groundbreaking improvement in consumer protection law that enables Responsible Franchising in California as a model for other states.”

Introduced by California State Sen. Thomas Umberg (D-34) in January 2024, S.B. 919 amends the California Franchise Investment Law (CFIL) to add annual registration and pre-sale disclosure requirements for franchise brokers, including franchise broker networks, franchise brokers, and franchise sales organizations. IFA has advocated for the legislation since its introduction, including testimony before the California Senate Banking Committee, building on IFA’s longstanding principles of Responsible Franchising, working to strengthen the franchise relationship where it begins—at the start of the franchise sales process.  

“California has completed some important work in recent years to ensure transparency and consumer protections for residents looking to invest in franchise operations,” said Sen. Thomas J. Umberg (D-Santa Ana), the bill’s author. “S.B. 919 is the next step forward in that process and will ensure that third-party franchise brokers, an important piece of this economy, are subject to similar oversight and disclosures. We’re working together to help our local city economies thrive while supporting small business owners and consumers alike.”

“CFA, as an organization that solely represents the interest of franchisees, is proud to join IFA and AAFD as stewards of the path to the American Dream that franchising represents in taking this important step in protecting prospective franchisees as investors with greatly improved disclosure,” added John Motta, Chairman of the Coalition of Franchisee Associations (CFA). “S.B. 919 is designed to give people embarking on this path critical information they need to make more informed decisions.”

“I am grateful to my colleagues working on this legislation because it is a much-needed and important improvement to a broader set of amendments to the existing franchise disclosure regime that are long past due,” said Rob Branca, IFA Board member, CFA Board member and Franchisee Chair of the Inspire Brands and Dunkin Government Affairs Committees. “Prospective franchise buyers often know very little about franchising generally and certainly not the particular intricacies involved with the buying process or the resulting long term contractual obligations. We hope that this legislation will guide perspective buyers to ask the questions critical to thorough due diligence as they navigate the franchise sales process.”

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

  • File an annual registration similar to what currently is required in New York and Washington and pay the applicable fee.
  • 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) brands for which franchises were sold during the prior year, including the total number of units sold for each brand.

 

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