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Introduction to California Franchise Laws

In California, the offer and sale of franchises are regulated and governed by the state of California. The most relevant statutes include the California Franchise Investment Law (CFIL), the Seller Assisted Marketing Plan Act (SAMP), and the California Franchise Relations Act (CFRA).

The CFIL regulates offers and sales of franchises. This includes a host of common issues that may arise prior to the signing of the franchise agreement, such as marketing issues, advertising, modifications, transfers, trademarks, renewals, etc. Prior to any offer or sale, the franchisor is required to register the franchise offering with the California Department of Corporations. Franchisors must also provide a disclosure statement that discloses information regarding the franchise. Failure to do so may result in liability to the franchisee.

The SAMP regulates the offer and sale of seller-assisted marketing plans and business opportunities. This often includes vending machines, medical billing ventures, and rack display operations. SAMPs are different than traditional franchise agreements in that SAMPs generally do not involve the transfer of a trademark license or other similar rights to commercial symbols or names. For example, SAMP sellers may merely provide buyers with the machines and a location for the machines. The key thing to note is that business opportunities that are exempt from the CFIL or CRFA may still be subject to SAMP. Like traditional franchise agreements, SAMP still mandates that certain provisions be included in SAMP contracts and that certain disclosures be made.

The CFRA regulates the on-going relationship between franchisors and franchisees. This often includes issues related to termination or modification of franchising agreements, as the statute was passed to prevent certain unfair terminations of franchise relationships by franchisors. The CFRA provides that franchise relationships cannot be terminated without good cause prior to the expiration of the franchise agreement.

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