California Clarifies Role of Development Agents, Others

Some May Require Registration as Sub-Franchisors

LOS ANGELES (Blue MauMau) -  On February 1, 2008, Preston DuFauchard, California Corporations Commissioner, issued Release No. 18-F to provide clarity that franchise area developers and other such entities should be deemed a subfranchisor, thereby requiring registration with the Department of Corporations. He states that this is an appropriate time to issue the clarification, since the Federal Trade Commission (FTC) has adopted amendments to the federal franchise rules, as well as this issue and others.

The Release 18-F provides guidelines that development agents (sellers) are not considered subfranchisors UNLESS that person is a party to the franchise agreement. Brokers are not included in this need for registration. But it cautions, even though circumstances may lead to the conclusion that it does fall outside the definition of being a subfranchisor, it does not release the franchisor from fully disclosing their arrangement with that agent to potential franchisees in the Uniform Franchise Offering Circular or Franchise Disclosure Document.

Release18-FCA Dept. Corp.

CA Dept. Corp. 2007 Guidelines