California Makes Significant Progress in Promoting Responsible Franchising

The California Senate recently passed Senate Bill 919, a piece of legislation aimed at strengthening franchise relationships by extending disclosure requirements to third-party franchise sellers. The bill, which received bipartisan support, will provide more information to prospective franchisees, ultimately leading to stronger franchise relationships in the long term.

According to Matthew Haller, president of the International Franchise Association (IFA), third-party franchise sellers play a vital role in the franchise model, and this legislation will provide greater clarity to prospective franchisees about the various parties involved in the franchise sales process. The bill defines third-party sellers as individuals or companies engaged in offering franchises on behalf of a franchisor, including brokers, franchise sales organizations, and business coaches.

The legislation, known as S.B. 919, amends the California Franchise Investment Law to require third-party franchise sellers to register annually and provide pre-sale disclosures. Key provisions of the proposed amendments include the filing of an annual registration, similar to requirements in New York, and the provision of a brief disclosure document containing essential information about the seller’s professional experience, compensation structure, industries represented, and franchises sold in the prior year.

The Senate passed the legislation with a vote of 36-1, and it will now move to the California Assembly for further consideration. The IFA has been advocating for responsible franchising practices, emphasizing the importance of robust pre-sale disclosure to enhance transparency in the industry. These efforts align with the IFA’s recommendations to modernize disclosure requirements and increase third-party disclosures to ensure informed decision-making by prospective franchisees.