Franchise

Franchise Transactions ## What Is a Franchise? A franchise is a business relationship in which the franchisor (licensor) grants the franchisee (licensee) the right to operate a business using the franchisor's trade name, systems, marketing, and products in exchange for fees and royalties. Franchises exist across retail, food service, real estate, auto services, hospitality, and virtually every consumer service sector. California business brokers frequently handle franchise sales — both the sale of existing franchise locations between franchisees, and occasionally assisting new franchisees. The legal framework is primarily governed by California and Federal disclosure law, and by the Franchise Agreement between franchisor and franchisee. --- ## California Franchise Investment Law (CFIL) The California Franchise Investment Law (Corporations Code §31000 et seq.) requires franchisors to register their franchise offering with the California Department of Financial Protection and Innovation (DFPI) before offering or selling franchises in California. Exemptions are limited. Key requirements: - Franchisor must provide the Franchise Disclosure Document (FDD) to prospective franchisees - FDD must be delivered at least 14 calendar days before the franchise agreement is signed or any fees are paid - The FDD contains 23 prescribed items, including: the franchisor's history and litigation, franchise fees, financial performance representations, franchisee obligations, territory rights, and termination/renewal provisions Federal parallel: The FTC Franchise Rule (16 C.F.R. Part 436) requires FDD delivery before sale at the federal level as well. California's law is generally stricter. --- ## The Franchise Disclosure Document (FDD) The FDD is a pre-sale disclosure package with 23 standardized items: | Item | Content | |---|---| | 1-4 | Franchisor identity, business experience, litigation, bankruptcy | | 5-7 | Fees (initial, royalties, renewal), estimated initial investment | |…