The California Senate passed the Senate 919 invoice last week, a piece of legislation that extends disclosure requirements to third-party sellers of franchises, including brokers, broker networks and franchise sales organizations. The bill, which received bipartisan support, would strengthen franchise relationships by providing more information about potential franchises.

“Third-party franchise sellers play a vital role in the franchise model and this legislation provides greater clarity of the various parties involved in the franchise sales process for prospective franchisees,” said Matthew Haller, president of the IFA- s. in a statement. “Responsible franchising involves improved disclosure and ultimately leads to stronger franchise relationships over the long term.”

The IFA defines “third party vendors” as “individuals or companies who are engaged (either directly or indirectly) in the business of providing franchises on behalf of a franchisor”. These salespeople have various titles, including brokers, franchise agents, intermediary organizations, exclusive sales organizationsbusiness coaches, advisors, franchise experts and sales consultants.

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California Franchise Investment Law

legislation, SB 919vary California Franchise Investment Law (CFIL) to require franchised third-party sellers to register annually and provide pre-sale disclosures. It is based on the IFA principles for responsible franchise and aims to strengthen franchise relationships from the start of the sales process.

The main provisions of the proposed changes to the CFIL include several important changes aimed at increasing transparency and accountability for third-party franchise sellers. First, third-party exclusivity retailers must file an annual filing, similar to existing New York requirements, ensuring compliance and ongoing oversight.

Second, prospective franchisees should receive a brief disclosure document that contains essential information, including general information about third-party franchise vendors, suggested questions for potential franchises to request, and the contact information and status of formation of the third party franchise seller.

The document will also detail the salesperson's professional experience over the past five years, any certifications or continuing education, litigation history, types of services performed, general compensation structure, industries represented, and number of Make within any industry. Additionally, it will provide a list of franchises sold during the previous calendar year.

The Senate approved the legislation by a vote of 36-1 and will now move on California Assembly for further consideration.

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Responsible franchise

Between growth responsible franchise initiative — and accompanying movement at the base in the industry – the recently released IFA RECOMMENDATIONS to enhance and strengthen exclusivity through increased transparency in all aspects of the sales process.

“Strong pre-sale disclosure is the foundation of responsible franchising,” Haller said in a statement after the guidelines were released. “These policy recommendations would modernize current disclosure requirements.”

The recommendations included simplifying federal requirements Franchise Disclosure Documentrequiring prospective franchisees to perform thorough due diligence and increase third-party disclosures.