California recently made one significant movement in the franchise industry with Governor Gavin Newsom's signing of Senate Bill 919 (SB 919). This bipartisan legislation introduces new registration and presale disclosure requirements for third-party franchise sellers, including brokers, broker networks, and franchise sales organizations. The bill aims to improve tRANSPARENCY during the franchise sale process, an area that has long been under scrutiny.
The International Franchise Association (IFA) was a vocal supporter of this legislation, citing its alignment with the principles outlined in the IFA. Responsible franchising initiative. By focusing on transparency and disclosure, SB 919 is a step toward strengthening the franchisee-franchisor relationship.
“By improving the information available to potential franchisees during the pre-sale process, the legislation strengthens the foundation upon which the franchise relationship begins,” Matt Haller, president and CEO of IFAsaid in a statement. “We hope that this law will serve as a model for Responsible Franchising in other states.
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What does this mean for franchise agents?
Franchise agents play an essential role in the industry by connecting franchisors with potential franchisees. Their fees are often tied to their ability to bring qualified candidates to the table. In states like New York and Washington, third-party franchise brokers are already subject to registration requirements, and now, with SB 919, California joins the list.
The new law vary California Franchise Investment Law (CFIL), adding specific annual registration and pre-sale disclosure mandates for brokers and franchise networks. These include annual registration, where brokers must register each year and pay applicable fees, and new disclosure requirementsincluding requiring third-party franchise vendors to submit a disclosure document to prospective franchisees. This document will cover essential information, including litigation history, compensation structure, the industries they represent and the brands they sold franchises for in the past year.
A model for other countries?
IFA expressed optimism that SB 919 could become a model for other states seeking to increase consumer protections in the franchise space. California is a major player in the US economy, and its moves often set the tone for future legislative trends. If other states follow suit, third-party franchise brokers nationwide may soon face a new era of increased accountability and transparency.
For the franchise industry, SB 919 represents a critical shift toward more responsible practices. It ensures that prospective franchisees can access the information they need to make sound investment decisions. While the law will come into effect over the next two years, franchise stakeholders across the country will be watching closely.
