CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION Assembly Bill No. 676Introduced by Assembly Member HoldenFebruary 12, 2021 An act to amend Sections 20015, 20022, 20029, and 20041 of, and to add Section 20044 to, the Business and Professions Code, and to amend Sections 31013 and 31115 of the Corporations Code, relating to franchises. LEGISLATIVE COUNSEL'S DIGESTAB 676, as introduced, Holden. Franchises.(1) Existing law, the California Franchise Relations Act, sets forth certain requirements related to the termination, nonrenewal, and transfer of franchises between a franchisor, subfranchisor, and franchisee, as those terms are defined. Existing law provides that the act applies to any franchise when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.This bill would additionally require that any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.Existing law authorizes a franchisor, upon the termination or nonrenewal of a franchise, to offset any amounts owed to the franchisee against any amounts owed by the franchisee to the franchisor.This bill would recast that provision to authorize the offset only if the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.Existing law requires a franchisee, before the sale, assignment, or transfer of a franchise, as specified, to another person, to notify, in writing, the franchisor of the franchisees intent to sell, transfer, or assign the franchise. Existing law requires this notice of transfer to include specified information and meet certain criteria.This bill would prohibit those provisions from applying to a transfer in which the new transferee agrees to receive the franchise by assuming or taking subject to the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.This bill would prohibit a franchisor from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.This bill would limit the application of the above changes to a franchise agreement entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated without cause.(2) Existing law, the Franchise Investment Law, provides that an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state.This bill would delete whether a franchisee is domiciled in this state and whether the franchised business is operated in this state as factors that determine whether an offer or sale of a franchise is made within this state.Existing law authorizes the Commissioner of Business Oversight to summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds certain things, including, but not limited to, that there has been a failure to comply with the Franchise Investment Law or the rules of the commissioner pertaining to that law.This bill would authorize the commissioner to summarily issue a stop order if the commissioner finds the franchisors method of business includes or would include activities that are or would be illegal where performed.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill TextThe people of the State of California do enact as follows:SECTION 1. Section 20015 of the Business and Professions Code is amended to read:20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.SEC. 2. Section 20022 of the Business and Professions Code is amended to read:20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.SEC. 3. Section 20029 of the Business and Professions Code is amended to read:20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.SEC. 4. Section 20041 of the Business and Professions Code is amended to read:20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.SEC. 5. Section 20044 is added to the Business and Professions Code, to read:20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.SEC. 6. Section 31013 of the Corporations Code is amended to read:31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.SEC. 7. Section 31115 of the Corporations Code is amended to read: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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION Assembly Bill No. 676Introduced by Assembly Member HoldenFebruary 12, 2021 An act to amend Sections 20015, 20022, 20029, and 20041 of, and to add Section 20044 to, the Business and Professions Code, and to amend Sections 31013 and 31115 of the Corporations Code, relating to franchises. LEGISLATIVE COUNSEL'S DIGESTAB 676, as introduced, Holden. Franchises.(1) Existing law, the California Franchise Relations Act, sets forth certain requirements related to the termination, nonrenewal, and transfer of franchises between a franchisor, subfranchisor, and franchisee, as those terms are defined. Existing law provides that the act applies to any franchise when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.This bill would additionally require that any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.Existing law authorizes a franchisor, upon the termination or nonrenewal of a franchise, to offset any amounts owed to the franchisee against any amounts owed by the franchisee to the franchisor.This bill would recast that provision to authorize the offset only if the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.Existing law requires a franchisee, before the sale, assignment, or transfer of a franchise, as specified, to another person, to notify, in writing, the franchisor of the franchisees intent to sell, transfer, or assign the franchise. Existing law requires this notice of transfer to include specified information and meet certain criteria.This bill would prohibit those provisions from applying to a transfer in which the new transferee agrees to receive the franchise by assuming or taking subject to the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.This bill would prohibit a franchisor from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.This bill would limit the application of the above changes to a franchise agreement entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated without cause.(2) Existing law, the Franchise Investment Law, provides that an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state.This bill would delete whether a franchisee is domiciled in this state and whether the franchised business is operated in this state as factors that determine whether an offer or sale of a franchise is made within this state.Existing law authorizes the Commissioner of Business Oversight to summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds certain things, including, but not limited to, that there has been a failure to comply with the Franchise Investment Law or the rules of the commissioner pertaining to that law.This bill would authorize the commissioner to summarily issue a stop order if the commissioner finds the franchisors method of business includes or would include activities that are or would be illegal where performed.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO
CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION
Assembly Bill
No. 676
Introduced by Assembly Member HoldenFebruary 12, 2021
Introduced by Assembly Member Holden
February 12, 2021
An act to amend Sections 20015, 20022, 20029, and 20041 of, and to add Section 20044 to, the Business and Professions Code, and to amend Sections 31013 and 31115 of the Corporations Code, relating to franchises.
LEGISLATIVE COUNSEL'S DIGEST
## LEGISLATIVE COUNSEL'S DIGEST
AB 676, as introduced, Holden. Franchises.
(1) Existing law, the California Franchise Relations Act, sets forth certain requirements related to the termination, nonrenewal, and transfer of franchises between a franchisor, subfranchisor, and franchisee, as those terms are defined. Existing law provides that the act applies to any franchise when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.This bill would additionally require that any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.Existing law authorizes a franchisor, upon the termination or nonrenewal of a franchise, to offset any amounts owed to the franchisee against any amounts owed by the franchisee to the franchisor.This bill would recast that provision to authorize the offset only if the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.Existing law requires a franchisee, before the sale, assignment, or transfer of a franchise, as specified, to another person, to notify, in writing, the franchisor of the franchisees intent to sell, transfer, or assign the franchise. Existing law requires this notice of transfer to include specified information and meet certain criteria.This bill would prohibit those provisions from applying to a transfer in which the new transferee agrees to receive the franchise by assuming or taking subject to the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.This bill would prohibit a franchisor from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.This bill would limit the application of the above changes to a franchise agreement entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated without cause.(2) Existing law, the Franchise Investment Law, provides that an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state.This bill would delete whether a franchisee is domiciled in this state and whether the franchised business is operated in this state as factors that determine whether an offer or sale of a franchise is made within this state.Existing law authorizes the Commissioner of Business Oversight to summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds certain things, including, but not limited to, that there has been a failure to comply with the Franchise Investment Law or the rules of the commissioner pertaining to that law.This bill would authorize the commissioner to summarily issue a stop order if the commissioner finds the franchisors method of business includes or would include activities that are or would be illegal where performed.
(1) Existing law, the California Franchise Relations Act, sets forth certain requirements related to the termination, nonrenewal, and transfer of franchises between a franchisor, subfranchisor, and franchisee, as those terms are defined. Existing law provides that the act applies to any franchise when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.
This bill would additionally require that any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
Existing law authorizes a franchisor, upon the termination or nonrenewal of a franchise, to offset any amounts owed to the franchisee against any amounts owed by the franchisee to the franchisor.
This bill would recast that provision to authorize the offset only if the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
Existing law requires a franchisee, before the sale, assignment, or transfer of a franchise, as specified, to another person, to notify, in writing, the franchisor of the franchisees intent to sell, transfer, or assign the franchise. Existing law requires this notice of transfer to include specified information and meet certain criteria.
This bill would prohibit those provisions from applying to a transfer in which the new transferee agrees to receive the franchise by assuming or taking subject to the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
This bill would prohibit a franchisor from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
This bill would limit the application of the above changes to a franchise agreement entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated without cause.
(2) Existing law, the Franchise Investment Law, provides that an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state.
This bill would delete whether a franchisee is domiciled in this state and whether the franchised business is operated in this state as factors that determine whether an offer or sale of a franchise is made within this state.
Existing law authorizes the Commissioner of Business Oversight to summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration if the commissioner finds certain things, including, but not limited to, that there has been a failure to comply with the Franchise Investment Law or the rules of the commissioner pertaining to that law.
This bill would authorize the commissioner to summarily issue a stop order if the commissioner finds the franchisors method of business includes or would include activities that are or would be illegal where performed.
## Digest Key
## Bill Text
The people of the State of California do enact as follows:SECTION 1. Section 20015 of the Business and Professions Code is amended to read:20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.SEC. 2. Section 20022 of the Business and Professions Code is amended to read:20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.SEC. 3. Section 20029 of the Business and Professions Code is amended to read:20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.SEC. 4. Section 20041 of the Business and Professions Code is amended to read:20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.SEC. 5. Section 20044 is added to the Business and Professions Code, to read:20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.SEC. 6. Section 31013 of the Corporations Code is amended to read:31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.SEC. 7. Section 31115 of the Corporations Code is amended to read: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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
The people of the State of California do enact as follows:
## The people of the State of California do enact as follows:
SECTION 1. Section 20015 of the Business and Professions Code is amended to read:20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
SECTION 1. Section 20015 of the Business and Professions Code is amended to read:
### SECTION 1.
20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
20015. (a) The provisions of this chapter apply to any franchise where when either the franchisee is domiciled in this state or the franchised business is or has been operated in this state.
(b) Any provision of a franchise agreement requiring the franchisee to waive the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
SEC. 2. Section 20022 of the Business and Professions Code is amended to read:20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
SEC. 2. Section 20022 of the Business and Professions Code is amended to read:
### SEC. 2.
20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
20022. (a) Except as provided in this section, upon a lawful termination or nonrenewal of a franchisee, the franchisor shall purchase from the franchisee, at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business. The franchisor shall have the right to receive clear title to and possession of all items purchased from the franchisee under this section.
(b) This section shall not require the franchisor to purchase any personalized items, inventory, supplies, equipment, fixtures, or furnishings not reasonably required to conduct the operation of the franchise business in accordance with the franchise agreement or any ancillary or collateral agreement or to which the franchisee, at the cessation of operation of the franchise business by the franchisee, cannot lawfully, or does not, grant the franchisor clear title and possession upon the franchisors payment to the franchisee for the inventory, supplies, equipment, fixtures, or furnishings.
(c) This section shall not apply when the franchisee declines a bona fide offer of renewal from the franchisor.
(d) This section shall not apply if the franchisor does not prevent the franchisee from retaining control of the principal place of the franchise business.
(e) This section shall not apply to any termination or nonrenewal of a franchise due to a publicly announced and nondiscriminatory decision by the franchisor to completely withdraw from all franchise activity within the relevant geographic market area in which the franchise is located. For the purpose of this section relevant geographic market area shall have the same meaning as in Section 20999.
(f) This section shall not apply if the franchisor and franchisee mutually agree in writing to terminate or not renew the franchise.
(g) This section shall not apply to any inventory, supplies, equipment, fixtures, or furnishings that are sold by the franchisee between the date of the notice of termination or nonrenewal, and the cessation of operation of the franchise business, by the franchisee, pursuant to the termination or nonrenewal.
(h) Upon the termination or nonrenewal of a franchise, a franchisor may offset against the amounts owed to a franchisee under this section any amounts owed by the franchisee to the franchisor. franchisor, provided the franchisee agrees to the amount owed or the franchisor has received a final adjudication of any amounts owed.
SEC. 3. Section 20029 of the Business and Professions Code is amended to read:20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
SEC. 3. Section 20029 of the Business and Professions Code is amended to read:
### SEC. 3.
20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:(1) The proposed transferees name and address.(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.(3) This section does not require a franchisor to exercise a contractual right of first refusal.(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
20029. (a) The franchisee shall, prior to the sale, assignment, or transfer of a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in the franchise business, to another person, notify the franchisor, of the franchisees intent to sell, transfer, or assign the franchise, all or substantially all of the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business. The notice shall be in writing, delivered to the franchisor by business courier or by receipted mail and include all of the following:
(1) The proposed transferees name and address.
(2) 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) The proposed transferees application for approval to become the successor franchisee. The application shall include all forms, financial disclosures, and related information generally utilized by the franchisor in reviewing prospective new franchisees, if those forms are readily made available to the existing franchisee. If the forms are not readily available, the franchisee shall request and the franchisor shall deliver the forms to the franchisee by business courier or receipted mail within 15 calendar days. As soon as practicable after the receipt of the proposed transferees application, the franchisor shall notify, in writing, the franchisee and the proposed transferee of any additional information or documentation necessary to complete the transfer application. If the franchisors then-existing standards for the approval of new or renewing franchisees are not readily available to the franchisee when the franchisee notifies the franchisor of the franchisees intent to sell, transfer, or assign the franchise, the assets of the franchise business, or the controlling or noncontrolling interest in the franchise business, the franchisor shall communicate the standards to the franchisee within 15 calendar days.
(b) (1) The franchisor shall, within 60 days after the receipt of all of the necessary information and documentation required pursuant to subdivision (a), or as specified by written agreement between the franchisor and the franchisee, notify the franchisee of the approval or disapproval of the proposed sale, assignment, or transfer. The notice shall be in writing and shall be delivered to the franchisee by business courier or receipted mail. A proposed sale, assignment, or transfer shall be deemed approved, unless disapproved by the franchisor in the manner provided by this subdivision. If the proposed sale, assignment, or transfer is disapproved, the franchisor shall include in the notice of disapproval a statement setting forth the reasons for the disapproval.
(2) In any action in which the franchisors disapproval of a sale, assignment, or transfer pursuant to this subdivision is an issue, the reasonableness of the franchisors decision shall be a question of fact requiring consideration of all existing circumstances. For purposes of this paragraph, the finder of fact may be an arbitrator specified in the franchise agreement and who satisfies the requirements of Section 20040. Nothing in this paragraph shall prohibit summary judgment when the reasonableness of transfer approval or disapproval can be decided as a matter of law.
(3) This section does not require a franchisor to exercise a contractual right of first refusal.
(c) This section does not prohibit a franchisor from exercising the contractual right of first refusal to purchase a franchise, all or substantially all of the assets of a franchise business, or a controlling or noncontrolling interest in a franchise business after receipt of a bona fide offer from a proposed purchaser to purchase the franchise, assets, or interest. Any franchisor exercising the contractual right of first refusal shall offer the seller payment at least equal to the value offered in the bona fide offer.
(d) For the purpose of this section franchise business shall include a legal entity that is a party to a franchise agreement.
(e) This section shall not apply to a transfer in which the new transferee agrees to receive the franchise by assuming, or taking subject to, the existing franchise agreement, and the existing franchise agreement permits such a transfer without the requirement that a new franchise agreement be executed between the franchisor and the new franchisee.
SEC. 4. Section 20041 of the Business and Professions Code is amended to read:20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
SEC. 4. Section 20041 of the Business and Professions Code is amended to read:
### SEC. 4.
20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
20041. (a) Except as provided in subdivision (b), the provisions of this chapter shall apply only to franchises granted or renewed on or after January 1, 1981, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
(b) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into or renewed on or after January 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
(c) The amendments to this chapter made by the act adding this subdivision shall apply only to franchise agreements entered into, amended, or renewed on or after January 1, 2022, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.
SEC. 5. Section 20044 is added to the Business and Professions Code, to read:20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
SEC. 5. Section 20044 is added to the Business and Professions Code, to read:
### SEC. 5.
20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
20044. A franchisor is prohibited from modifying a franchise agreement, or requiring a general release, in exchange for any assistance related to a declared state or federal emergency.
SEC. 6. Section 31013 of the Corporations Code is amended to read:31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
SEC. 6. Section 31013 of the Corporations Code is amended to read:
### SEC. 6.
31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
31013. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state. franchise will be operated in this state.
(b) An offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror in this state; and acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.
(c) An offer to sell is not made in this state merely because (1) the publisher circulates or there is circulated on his their behalf in this state any bona fide newspaper or other publication of general, regular, and paid circulation which that has had more than two-thirds of its circulation outside this state during the past 12 months, or (2) a radio or television program originating outside this state is received in this state.
SEC. 7. Section 31115 of the Corporations Code is amended to read: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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
SEC. 7. Section 31115 of the Corporations Code is amended to read:
### SEC. 7.
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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
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:(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 franchisors method of business includes or would include activities that are or would be illegal where performed.
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:
(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 franchisors method of business includes or would include activities that are or would be illegal where performed.