The California Senate passed Senate Bill 919 past week, a portion of authorities that extends disclosure requirements to third-party franchise sellers, including brokers, agent networks and franchise income organizations. The bill, which received bipartisan support, will fortify franchise relationships by providing much accusation to prospective franchisees.
"Third-party franchise sellers play a captious domiciled successful nan franchise model, and this authorities provides greater clarity of nan various parties engaged successful nan franchise income process to prospective franchisees," Matthew Haller, IFA president, said in a statement. "Responsible franchising includes improved disclosure and yet leads to stronger franchise relationships successful nan agelong term."
The IFA defines "third-party sellers" arsenic "individuals aliases companies that are engaged (whether straight aliases indirectly) successful nan business of offering franchises connected behalf of a franchisor." These sellers person various titles, including brokers, franchise brokers, broker organizations, franchise income organizations, business coaches, advisors, franchise experts and income consultants.
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California Franchise Investment Law
The legislation, S.B. 919, amends nan California Franchise Investment Law (CFIL) to require third-party franchise sellers to registry annually and supply pre-sale disclosures. It builds connected IFA's principles of responsible franchising and intends to fortify nan franchise narration from nan commencement of nan income process.
Key provisions of nan projected amendments to nan CFIL see respective important changes aimed astatine expanding transparency and accountability for third-party franchise sellers. First, third-party franchise sellers must record an yearly registration, akin to existing requirements successful New York, ensuring ongoing compliance and oversight.
Second, prospective franchisees must person a little disclosure archive containing basal information, including wide accusation astir third-party franchise sellers, suggested questions for prospective franchisees to ask, and nan interaction accusation and authorities of statement of nan third-party franchise seller.
The archive will besides item nan seller's master acquisition complete nan past 5 years, immoderate certifications aliases continuing education, litigation history, types of services performed, nan wide compensation structure, industries represented, and nan number of brands wrong each industry. Additionally, it will supply a database of franchises sold during nan anterior almanac year.
The Senate passed nan authorities pinch a ballot of 36-1, and it will now move to nan California Assembly for further consideration.
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Responsible franchising
Amid nan increasing responsible franchising inaugural — and nan accompanying grassroots movement successful nan manufacture — nan IFA precocious released recommendations to heighten and fortify franchising done accrued transparency connected each sides of nan income process.
"Robust pre-sale disclosure is nan bedrock of responsible franchising," Haller said successful a connection pursuing nan merchandise of nan guidelines. "These argumentation recommendations would modernize existent disclosure requirements."
The recommendations included simplifying nan federally required Franchise Disclosure Document, requiring prospective franchisees to behaviour thorough owed diligence and expanding third-party disclosures.