Unique to the state of California, there are exemptions for what franchise transactions you, as a franchisor, are allowed to participate in without first acquiring a franchise disclosure document (FDD) registration. Continue reading to learn what these exemptions are and how one of the experienced franchise acquisition attorneys at FortmanSpann, LLC can help you understand this.
What are examples of franchise registration exemptions in the state of California?
In the state of California, a majority of franchisors will need to issue and register their FDD with the California Department of Financial Protection and Innovation before all else. But of note, there are three major exemptions in this state.
The first exemption states that you, as a franchisor, need not register your FDD first if your franchise sale is to a franchisee that is not a California resident. What’s more, this franchised business will have to be developed and operated outside of this state. And this is regardless of whether you are operating your franchise company within the state.
Secondly, as a franchisor, you may be exempted if your individual unit franchise sale is to a franchisee that meets certain experience criteria. With this, you may have to file a Registration Exemption Notice with the California Department of Financial Protection and Innovation.
Then, as a franchisor, you may be exempted if your individual unit franchise sale is to a franchisee that already owns or operates an existing business. Meaning, this franchise business will serve as an “add-on” to their existing business and will make up only a small percentage of their overall gross sales.
Lastly, you may have an exemption if your individual unit franchise sale is to a franchisee that meets certain net worth, income, and financial experience criteria. This is otherwise known as the “sophisticated franchisee exemption,” and to opt for this, you must first file a Franchise Registration Exemption Notice with the California Department of Business Oversight. Importantly, this may come with a filing fee of approximately $450.
Why do I need to hire a franchise law attorney?
Despite the exemptions stated above, you must not base your decisions on these facts alone. Instead, you must seek the guidance of one of the skilled franchise law attorneys.
This is because an attorney will review the facts surrounding your franchise system, your potential franchisee, and your potential franchise sale, among other things. They will review these circumstances against the state of California’s franchise laws. Only then is when you will ultimately understand whether these franchise registration exemptions apply to you.
In the end, it is recommended that you avoid the risk and obtain your FDD registration in the first place. Rest assured, one of our attorneys is ready and willing to help you through your franchise registration in California. Contact FortmanSpann, LLC today.