CHAPTER 2. Disclosure [31110. - 31126.]

Cal. Corporations Code - CORP 2.

in effect

Cal. Corporations Code - CORP § 31110. Section 31110.

On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part.

Cal. Corporations Code - CORP § 31111. Section 31111.

(a) The application for registration of an offer shall be filed with the commissioner upon the Uniform Franchise Registration Application, as identified, modified, and supplemented by rule of the commissioner. (b) An authorization for the commissioner to examine the registrant’s financial records of the sale of the franchise pursuant to Section 7473 of the Government Code shall be filed with the application.

Cal. Corporations Code - CORP § 31112. Section 31112.

Any application or amendment under this law shall be signed and verified by the franchisor or by the subfranchisor. Such verification shall be in the same manner provided in the Code of Civil Procedure for the verification of pleadings.

Cal. Corporations Code - CORP § 31113. Section 31113.

If the commissioner finds that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors because the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor’s obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the commissioner may by rule or order require the escrow or impound of franchisee fees and other funds paid by the franchisee or subfranchisor until such obligations have been satisfied. At the option of the franchisor, the franchisor may furnish a surety bond as provided by rule of the commissioner.

Cal. Corporations Code - CORP § 31114. Section 31114.

The application for registration shall be accompanied by a proposed franchise disclosure document, which shall contain the material information set forth in the application for registration, as specified by rule of the commissioner, and such additional disclosures as the commissioner may require. The franchise disclosure document shall recite in bold type of not less than 10-point type that registration does not constitute approval, recommendation, or endorsement by the commissioner.

Cal. Corporations Code - CORP § 31115. Section 31115.

The commissioner may summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds any of the following: (a) That there has been a failure to comply with any of the provisions of this law or the rules of the commissioner pertaining thereto. (b) That the offer or sale of the franchise would constitute misrepresentation to, or deceit or fraud of the purchasers, or that, in the case of a franchise other than a subfranchise, a major inducement to prospective franchisees is fees or other compensation from participation in the sale of additional franchises. (c) That the applicant has failed to comply with any rule or order of the commissioner issued pursuant to Section 31113. (d) That any person identified in the application or any officer or director of the franchisor, whether or not identified in the application, meets one or more of the following conditions, and the involvement of this person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees: (1) Has been convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable in a civil action by final judgment if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property. (2) Is subject to any currently effective order of the United States Securities and Exchange Commission or the securities administrator of any state denying registration to or revoking or suspending the registration of the person as a securities broker or dealer or investment adviser or is subject to any currently effective order of any national securities association or national securities exchange (as defined in the Securities Exchange Act of 1934) suspending or expelling the person from membership in the association or exchange. (3) Is subject to any currently effective order or ruling of the Federal Trade Commission. (4) Is subject to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought by any public agency or department, including, without limitation, actions affecting a license as a real estate broker or sales person. (e) The franchisor’s method of business includes or would include activities that are or would be illegal where performed. (f) The franchise agreement contains a provision that is contrary to law.

Cal. Corporations Code - CORP § 31116. Section 31116.

(a) Except as provided in subdivision (b), if no stop order under Section 31115 is in effect under this law, registration of the offer of franchises automatically becomes effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment thereto, or at an earlier time that the commissioner determines. (b) With respect to any application for registration or the last amendment thereto filed between January 1, 1971, and March 15, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on April 15, 1971; with respect to any application filed after March 15, 1971, and before May 10, 1971, if no stop order under Section 31115 is in effect under this law, registration becomes effective on June 1, 1971, or the 15th business day after the filing, whichever is the later, or at an earlier time that the commissioner determines. (c) For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises.

Cal. Corporations Code - CORP § 31117. Section 31117.

Upon the entry of a stop order under Section 31115 the commissioner shall promptly notify the applicant that it has been entered and of the reasons therefor and that upon receipt of written request the matter will be set down for hearing to commence within 15 business days after such receipt unless the applicant consents to a later date. If no hearing is requested within 30 days after receipt of the notice and none is ordered by the commissioner, the order will remain in effect until it is modified or vacated by the commissioner. If a hearing is requested or ordered, the commissioner, after notice and hearing in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, in connection with which the commissioner shall have all of the powers granted thereunder, may modify or vacate the order or extend it until its final determination.

Cal. Corporations Code - CORP § 31118. Section 31118.

The commissioner may vacate or modify a stop order if he or she finds that the conditions which caused its entry have changed or that it is otherwise in the public interest to do so.

Cal. Corporations Code - CORP § 31119. Section 31119.

(a) It is unlawful to sell any franchise in this state that is subject to registration under this law without first providing to the prospective franchisee, at least 14 days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 14 days prior to the receipt of any consideration, whichever occurs first, a copy of the franchise disclosure document, together with a copy of all proposed agreements relating to the sale of the franchise. (b) Nothing in this division shall be construed to prevent a franchisor from providing copies of the franchise disclosure documents to prospective franchisees through electronic means pursuant to any requirements or conditions that may be imposed by rule or order of the commissioner.

Cal. Corporations Code - CORP § 31120. Section 31120.

A franchise offering shall be deemed duly registered for a period of one year from the effective date of the registration, unless the commissioner by order or rule specifies a different period.

Cal. Corporations Code - CORP § 31121. Section 31121.

(a) The registration may be renewed for additional periods of one year each, unless the commissioner by rule or order specifies a different period, by submitting to the commissioner a renewal application before the expiration of the registration. If no stop order or other order under Section 31115 is in effect under this law, registration of the offer of the franchises automatically becomes renewed effective at 12 p.m., California time, of the 30th business day after the filing of a complete application for registration or the last preeffective amendment or at an earlier time that the commissioner determines. (b) For purposes of this section, “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the commissioner. “Preeffective amendment” means an amendment to an application that is filed before the effective date of the registration of the sale of franchises.

Cal. Corporations Code - CORP § 31122. Section 31122.

The registration renewal statement shall be in the form and content prescribed by the commissioner, and shall be accompanied by a proposed offering prospectus. Each such registration renewal statement shall be accompanied by the fee prescribed in Part 5 (commencing with Section 31500) of this division.

Cal. Corporations Code - CORP § 31123. Section 31123.

A franchisor shall promptly notify the commissioner in writing, by an application to amend the registration, of any material change in the information contained in the application as originally submitted, amended or renewed. The commissioner may by rule further define what shall be considered a material change for such purposes, and the circumstances under which a revised offering prospectus must accompany such application.

Cal. Corporations Code - CORP § 31124. Section 31124.

An amendment to an application filed after the effective date of the registration of the sale of franchises, if such amendment is approved by the commissioner, shall become effective on such date as the commissioner may determine, having due regard for the public interest and the protection of franchisees.

Cal. Corporations Code - CORP § 31125. Section 31125.

(a) An application for registration of a material modification of an existing franchise or of existing franchises shall be in a form and contain information as the commissioner may by rule prescribe, and shall be accompanied by a proposed disclosure form as specified in subdivision (b). The application may be included with an application pursuant to Section 31111 or 31121. (b) Except as provided in subdivisions (c) and (d), it is unlawful to solicit the agreement of a franchisee to a proposed material modification of an existing franchise without first delivering to the franchisee a written disclosure, in a form and containing information as the commissioner may by rule or order require, identifying the proposed modification, either five business days prior to the execution of any binding agreement by the franchisee to the modification or containing a statement that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification. (c) Any modification of a franchise agreement with an existing franchisee of a franchisor shall be exempted from the provisions of this chapter, if all of the following are met: (1) The franchisee receives the complete written modification at least five business days prior to the execution of a binding agreement, or providing that the franchisee may, by written notice mailed or delivered to the franchisor or a specified agent of the franchisor within not less than five business days following the execution of the agreement, rescind the agreement to the material modification; provided (A) the agreement is not executed within 12 months after the date of the franchise agreement, and (B) the modification does not waive any right of the franchisee under the California Franchise Relations Act (Chapter 5.5 (commencing with Section 20000) of Division 8 of the Business and Professions Code), but the modification may include a general release of all known and unknown claims by a party to the modification. (2) The modification meets one of the following: (A) The proposed modification is in connection with the resolution of a bona fide dispute between the franchisor and the franchisee or the resolution of a claimed or actual franchisee or franchisor default, and the modification is not applied on a franchise systemwide basis at or about the time the modification is executed. A modification shall not be deemed to be made on a franchise systemwide basis if it is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period. (B) The proposed modification is offered on a voluntary basis to fewer than 25 percent of the franchisor’s California franchises within any 12-month period, provided each franchisee is given a right to rescind the modification agreement if the modification is not made in compliance with paragraph (1) of subdivision (c). (d) Any modification of a franchise agreement with an existing franchise of a franchisee shall be exempted from this chapter if the modification is offered on a voluntary basis and does not substantially and adversely impact the franchisee’s rights, benefits, privileges, duties, obligations, or responsibilities under the franchise agreement. (e) For purposes of this section, “California franchise” means: (1) an existing franchise of a franchisee with any location in this state from which sales, leases, or other transactions between the franchised business and its customers are made or goods or services are distributed, or (2) an existing franchise of a franchisee that is a resident of this state and that owns, controls, or has an equity interest in the franchise. (f) A franchisor shall not make modifications in consecutive years for the purpose of evading the 25 percent requirements set forth above.

Cal. Corporations Code - CORP § 31126. Section 31126.

(a) A prospective franchisee seeking to buy an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business shall do all of the following when applying with the franchisor to buy that franchise, those assets, or that interest: (1) Provide their name and address to the franchisor. (2) Provide to the franchisor a copy of all agreements related to the sale, assignment, or transfer of the franchise, the assets of the franchise business, or the interest in the franchise business. (3) Provide an application to the franchisor for approval of the transfer, which shall include all forms, financial disclosures, and related information required by the franchisor in reviewing prospective franchisees. (b) (1) If a form or document required to be submitted with an application pursuant to paragraph (3) of subdivision (a) is not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the form or document to the franchisor, and the franchisor shall deliver the form or document to the prospective franchisee by email, courier, or certified mail within 15 calendar days of receiving the request. (2) If the franchisor’s then-existing standards for approval of an application required by paragraph (3) of subdivision (a) are not reasonably available to the prospective franchisee, the prospective franchisee may make a written request for the standards to the franchisor, and the franchisor shall communicate the standards to the prospective franchisee within 15 calendar days of receiving the request. (c) As soon as practicable after receiving the application required by paragraph (3) of subdivision (a), the franchisor shall notify the prospective franchisee in writing of any additional information or documentation necessary to complete the application. (d) (1) The franchisor shall notify the prospective franchisee of the approval or disapproval of their application within 60 days after receiving the information and documentation required by subdivision (a) and requested by the franchisor pursuant to subdivision (c). The notice shall be in writing and shall be delivered to the prospective franchisee by email, courier, or certified mail. If the application is disapproved, the franchisor shall include in the notice a statement setting forth the reasons for the disapproval. (2) In any legal action in which the franchisor’s disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisor’s decision shall be a question of fact requiring consideration of all relevant circumstances. However, nothing in this paragraph shall prohibit summary judgment when the reasonableness of the disapproval can be decided as a matter of law. (e) This section neither prohibits a franchisor from exercising nor requires a franchisor to exercise a contractual right of first refusal to purchase an existing franchise, all or substantially all of the assets of an existing franchise business, or an interest in an existing franchise business. (f) This section shall not be interpreted to prevent the franchisor, in connection with a proposed sale under subdivision (a), from requiring that the prospective franchisee and the prospective seller comply with the transfer conditions specified in the franchise agreement.

Source: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026