Bill Text: CA SB919 | 2023-2024 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Franchise Investment Law: franchise brokers.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2024-09-24 - Chaptered by Secretary of State. Chapter 518, Statutes of 2024. [SB919 Detail]

Download: California-2023-SB919-Amended.html

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Amended  IN  Senate  March 14, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill

No. 919

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Introduced by Senator Umberg

January 10, 2024

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An act to amend Section 13004 of the Elections Sections 31210, 31300, and 31500 of, to add Section 31020 to, and to add Part 7 (commencing with Section 31520) to Division 5 of Title 4 of, the Corporations Code, relating to elections. franchises.

LEGISLATIVE COUNSEL'S DIGEST

SB 919, as amended, Umberg. Elections. Franchise Investment Law: third-party franchise sellers.

Existing law, the Franchise Investment Law, generally provides for the regulation of the offer and sale of franchises and requires the Commissioner of Financial Protection and Innovation to maintain a risk-based process of reviewing franchise applications with emphasis on risks associated with the franchisor’s financial condition, the franchisor’s compliance record, and significant deficiencies with the franchisor’s application. The law requires specific written disclosures, and authorizes the sale of a franchise to be exempt from specified requirements if the franchisor meets certain disclosure and notice requirements. Existing law makes it unlawful for a person to offer or sell any franchise unless the franchise has been registered or exempted pursuant to these provisions.

This bill would, beginning July 1, 2025, require a third-party franchise seller, as defined, to register with the commissioner, as specified, including signing and verifying a prescribed form, and authorize a registered third-party franchise seller to renew its registration annually, as specified. The bill would make it unlawful for a third-party franchise seller to offer or sell a franchise in this state unless the third-party franchise seller is registered pursuant to these provisions, as specified. The bill would authorize the commissioner to summarily issue a stop order suspending or denying the effectiveness of a registration under these provisions, as specified, and would prescribe a hearing process if the commissioner receives a written request for hearing from the third-party franchise seller, as specified. The bill would impose certain requirements on registered third-party franchise sellers, and make certain actions by third-party franchise sellers unlawful.

Existing law makes it unlawful for any person to effect or to attempt to effect a sale of a franchise unless, among other exceptions, the person is identified in an application or amended application with the commissioner, licensed by the Department of Real Estate as a real estate broker or real estate salesperson, or licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968.

This bill would remove the exemptions for licensed real estate brokers, real estate salespersons, broker-dealers, and agents as described above and instead specify that it is unlawful for any person to effect or attempt to effect a sale of a franchise unless the person is identified in an application or amended application with the commissioner, as specified, or registered as a third-party franchise seller, as specified.

Existing law requires the commissioner to charge and collect specified fees in connection with an application for registration for, renewal of, and amendment of, a registration of an offer of franchises, as specified, which are credited to the Financial Protection Fund.

This bill would establish specified fees in connection with an application for registration, renewal, or amendment of a registration as a third-party franchise seller, and would require the commissioner to charge and collect those fees.

By expanding the crime of perjury, as specified above, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law requires a ballot card manufacturer, finisher, or ballot on demand system vendor to disclose to the Secretary of State in writing any known flaw or defect in its ballot card manufacturing or finishing process, manufactured or finished ballot cards, or ballot on demand system that could adversely affect the future casting or tallying of votes.

This bill would make a technical, nonsubstantive change to that provision.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 Section 31020 is added to the Corporations Code, to read:

31020.

 (a) “Third-party franchise seller” means a person who directly or indirectly engages in the business of the offer or sale of a franchise, including, but not limited to, a franchise broker, a broker network, a broker organization, and a franchise sales organization.

(b) A “third-party franchise seller” does not include any of the following:

(1) A franchisor or its officers, directors, or employees.

(2) A subfranchisor or its officers, directors, or employees.

(3) An area representative or its officers, directors, or employees.

(4) An employee of a wholly owned affiliate of a franchisor or subfranchisor.

(5) A franchisee of the franchise offering being presented to a prospective franchisee, unless the franchisee operates a franchised broker business.

SEC. 2.

 Section 31210 of the Corporations Code is amended to read:

31210.

 It is unlawful for any person to effect or attempt to effect a sale of a franchise in this state, except in transactions exempted under Chapter 1 (commencing with Section 31100) of Part 2 of this division, unless such person is: (1) identified that person is either of the following:

(a) Identified in Item 2 of an application or amended application filed with the commissioner pursuant to Part 2 (commencing with Section 31100) of this division, (2) licensed by the Bureau of Real Estate as a real estate broker or real estate salesperson, or (3) licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968. division.

(b) Registered as a third-party franchise seller pursuant to Part 7 (commencing with Section 31520).

SEC. 3.

 Section 31300 of the Corporations Code is amended to read:

31300.

 (a) Any person who offers or sells a franchise in violation of Section 31101, 31110, 31119, 31200, or 31202, or of Part 7 (commencing with Section 31520), or in violation of any provision of this division that provides an exemption from the provisions of Chapter 2 (commencing with Section 31110) of Part 2 or any portions of Part 2, shall be liable to the franchisee or subfranchisor, who may sue for damages caused thereby, and if the violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200 or 31202, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if he or she they had exercised reasonable care, would not have known, of the untruth or omission.

(b) (1) Any third-party franchise seller who offers or sells a franchise in violation of Part 7 (commencing with Section 31520) or Section 31200 shall be liable to the franchisee, who may sue for damages caused thereby, and if the violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if they had exercised reasonable care, would not have known, of the untruth or omission.

(2) Any third-party franchise seller who offers or sells a franchise in violation of Part 7 (commencing with Section 31520) shall be liable to the franchisor, who may sue for damages or may assert claims of indemnity against the third-party franchise seller caused by the violation.

SEC. 4.

 Section 31500 of the Corporations Code is amended to read:

31500.

 (a) The commissioner shall charge and collect the fees fixed by this section. All fees and charges collected under this section shall be transmitted to the Treasurer at least weekly, accompanied by a detailed statement thereof and shall be credited to the State Corporations Fund.

(b) The fee for filing an application for registration of the offer of franchises under Section 31111 is six hundred seventy-five dollars ($675).

(c) The fee for filing an application for renewal of a registration under Section 31121 is four hundred fifty dollars ($450).

(d) The fee for filing an amendment to the application filed under Section 31111 or 31121 after the effective date of the registration of the offer of franchises, is fifty dollars ($50).

(e) The fee for filing an application for material modification under Section 31125 is fifty dollars ($50), whether or not it accompanies an application under Section 31111 or 31121.

(f) The fee for filing the initial notice of exemption under Section 31101 is four hundred fifty dollars ($450) and the fee for filing each consecutive subsequent notice of exemption under these provisions is one hundred fifty dollars ($150).

(g) The fee for filing an application for approval of a written notice of violation under Section 31303 or 31304 is six hundred seventy-five dollars ($675).

(h) The fee for filing an application for registration as a third-party franchise seller under Part 7 (commencing with Section 31520) is two hundred fifty dollars ($250).

(i) The fee for filing an application for renewal of a registration as a third-party franchise seller under Part 7 (commencing with Section 31520) is one hundred fifty dollars ($150).

(j) The fee for filing an application for amendment of a registration as a third-party franchise seller under Part 7 (commencing with Section 31520) is fifty dollars ($50).

SEC. 5.

 Part 7 (commencing with Section 31520) is added to Division 5 of Title 4 of the Corporations Code, to read:

PART 7. Third-Party Franchise Sellers

31520.

 (a) A third-party franchise seller shall register by filing all of the following with the commissioner:

(1) A completed Uniform Third-Party Franchise Seller Disclosure Form, as created, modified, and supplemented by the commissioner, that is signed and verified in the same manner as is provided for the verification of pleadings pursuant to the Code of Civil Procedure.

(2) A completed Uniform Third-Party Franchise Seller Disclosure Document, as created, modified, and supplemented by the commissioner.

(3) Any additional documents or exhibits prescribed by the commissioner.

(4) The required registration fee, as set forth in Section 31500.

(b) Subject to Section 31523, the registration shall be effective beginning at midnight on the fifth business day after the third-party franchise seller files the items required by subdivision (a), unless the commissioner determines an earlier time.

(c) Subject to Section 31523, a registration pursuant to this section shall expire one year after the effective date of the registration.

31521.

 (a) A registered third-party franchise seller may renew its registration annually by filing all of the following at least 14 days before the registration expires:

(1) An updated Uniform Third-Party Franchise Seller Disclosure Form.

(2) A registration renewal statement in the form and containing the information prescribed by the commissioner.

(3) Any additional documents or exhibits prescribed by the commissioner.

(4) The required filing fee, as set forth in Section 31500.

(b) Subject to Section 31523, the renewal shall be effective beginning at midnight on the fifth business day after the third-party franchise seller files the items required by subdivision (a), unless the commissioner determines an earlier time.

(c) Subject to Section 31523, a renewal pursuant to this section shall expire one year after the effective date of the renewal.

31522.

 (a) A registered third-party franchise seller shall promptly notify the commissioner in writing by an application to amend the registration of any material change in the information contained in the latest Uniform Third-Party Franchise Seller Disclosure Form filed by the third-party franchise seller.

(b) For purposes of this section, a “material change” includes, but is not limited to, any of the following:

(1) A change in litigation history.

(2) A change in services provided.

(3) A change in compensation.

(4) Any other change the commissioner determines constitutes a material change.

(c) The commissioner may issue a stop order pursuant to Section 31526 if the commissioner finds that any of the material changes provided pursuant to this section constitute a failure to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division.

31523.

 (a) The commissioner may summarily issue a stop order suspending or denying the effectiveness of any registration under this part if the commissioner finds that the third-party franchise seller has failed to comply with any of the provisions of this division or any rule issued by the commissioner pertaining to this division.

(b) A third-party franchise seller shall not offer or sell a franchise in this state while a stop order issued pursuant to subdivision (a) is in effect.

(c) Upon issuance of a stop order, the commissioner shall promptly provide a notice to the third-party franchise seller that contains all of the following:

(1) Notice that the stop order has been issued.

(2) The reasons for issuance of the stop order.

(3) Notice that the matter will be set for hearing within 15 business days after the commissioner receives a written request for hearing from the third-party franchise seller, unless the third-party franchise seller consents to a later date.

(d) The commissioner may modify, vacate, or extend a stop order until there has been a final determination of the matter at the hearing.

(e) A hearing under this section shall be conducted pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted under those provisions.

(f) If the third-party franchise seller does not request a hearing within 30 days after receipt of the notice required by subdivision (c), the stop order shall remain in effect until it is modified or vacated by the commissioner.

31524.

 A registered third-party franchise seller offering a franchise for sale in this state shall keep and maintain a complete set of books, records, and accounts of that offer for a period of five calendar years.

31525.

 A registered third-party franchise seller is subject to, and shall comply with, all of the following:

(a) Section 31154.

(b) Section 31156.

(c) Section 31157.

(d) Section 31158.

31526.

 (a) It is unlawful for a third-party franchise seller to offer or sell a franchise in this state unless the third-party franchise seller is registered pursuant to this part.

(b) For purposes of this section, an offer or sale of a franchise is made in this state if any of the following apply:

(1) The prospective franchisee resides in this state.

(2) The prospective franchisee has its principal place of business in this state.

(3) The franchised business will be located in this state.

31527.

 (a) It is unlawful for a third-party franchise seller to engage with a prospective franchisee about a franchise opportunity that is subject to registration pursuant to this division unless the third-party franchise seller first provides to the prospective franchisee a copy of the completed Uniform Third-Party Franchise Seller Disclosure Document.

(b) A third-party franchise seller may provide the Uniform Third-Party Franchise Seller Disclosure Document to a prospective franchisee through electronic means, subject to any requirements or conditions imposed by the commissioner.

31528.

 For purposes of this part, the Uniform Third-Party Franchise Seller Disclosure Document shall contain all of the following information:

(a) A third-party franchise seller cover page that contains standardized language regarding third-party franchise sellers, including, but not limited to, all of the following:

(1) The types of sellers.

(2) The third-party franchise sellers’ role in the franchise sales process.

(3) Services a third-party franchise seller might provide.

(4) Different ways a third-party franchise seller might be compensated for its services.

(5) Examples of questions a prospective franchisee might ask a third-party franchise seller.

(b) All of the following information about the third-party franchise seller:

(1) Legal name.

(2) Trade name.

(3) Year and state of incorporation.

(4) Principal place of business.

(5) Owners.

(6) Directors and officers.

(7) Contact information.

(c) The third-party franchise seller’s professional experience during the last five years.

(d) Administrative, civil, or criminal actions alleging that the third-party franchise seller, or an owner, officer, or director of the third-party franchise seller, violated any franchise, antitrust, or securities law, or committed fraud, unfair or deceptive practices, or similar violations, whether pending or resolved, within the last five years.

(e) The industries of the brands the third-party franchise seller represents and how many brands within each industry the third-party franchise seller represents.

(f) A description of the services performed by the third-party franchise seller.

(g) How the third-party franchise seller is compensated, including, but not limited to, how the amount of any consideration the third-party franchise seller receives is calculated.

(h) Whether a broker network, broker organization, or franchise sales organization may receive any additional consideration.

(i) The name and contact information for all franchisees to whom the third-party franchise seller sold a franchise anywhere in the United States or its territories during the last calendar year, including, but not limited to, the total number of units sold to each franchisee.

31529.

 This part shall become operative on July 1, 2025.

SEC. 6.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SECTION 1.Section 13004 of the Elections Code is amended to read:

13004.

(a)The Secretary of State shall adopt regulations governing the manufacture, finishing, quality standards, distribution, and inventory control of ballot cards and ballot on demand systems. For commercial ballot manufacturers and finishers, the Secretary of State shall require a biennial inspection of the certified manufacturing, finishing, and storage facilities. The Secretary of State shall also approve each ballot card manufacturer, finisher, and ballot on demand system before manufacturing or finishing ballot cards, or deploying a ballot on demand system, for use in California elections.

(b)Not later than five working days before the Secretary of State begins the initial inspection, the ballot card manufacturer, finisher, or ballot on demand system vendor shall disclose to the Secretary of State in writing any known flaw or defect in its ballot card manufacturing or finishing process, manufactured or finished ballot cards, or ballot on demand system that could adversely affect the future casting or tallying of votes. Once approved by the Secretary of State, the ballot card manufacturer, finisher, or ballot on demand system vendor shall notify the Secretary of State and the affected local elections officials in writing within two business days after it discovers any flaw or defect in its ballot card manufacturing or finishing process, manufactured or finished ballot cards, or ballot on demand system that could adversely affect the future casting or tallying of votes.