Mainstreaming California's Franchise Rules

On July 17, 2003, the California Department of Corporations (Department) revised the rules implementing the California Franchise Investment Law (FIL) to resolve a number of California disclosure idiosyncrasies. Specifically, the Department:

• Expanded the disclosure about out-of-state venue for binding arbitration, thereby ameliorating the Laxmi ruling interpreting California law;
• Reversed its informal policy of refusing to register earnings claims based solely on gross sales or equivalent top line data, a disclosure practice that every other registration state permits. Franchisors may now register gross-only claims in California as long as franchisors tell prospects they are not being given any cost or expense data from which to compute net income or profits; and
• Agreed to exempt Web site advertising about California franchise opportunities from the traditional media advertising filing rules if franchisors complete a single, simple annual filing.

On Feb. 19, 2004, California joined the Coordinated Franchise Review program, a nationwide effort begun 5 years ago to streamline the initial registration application process by allowing franchisors to obtain simultaneous review of their applications in multiple states through the coordinating efforts of a single lead examiner. California had been the only full review registration state not participating.