Commissioner's Release: 14-F: NOTICE OF EXEMPTION FILING UNDER CORPORATIONS CODE SECTION 31108 OF THE FRANCHISE INVESTMENT LAW

Gray Davis, Governor
Date: February 18, 2000

William Kenefick, Commissioner


Senate Bill 459 (Chapter 325, Statutes 1999), which became effective on January 1, 2000, added Section 31108 of the Corporations Code under the Franchise Investment Law to provide an exemption from the registration requirements for an offer or sale of a franchise in this state, if the franchise involves the adding of a new product or service line to the existing business of a prospective franchisee, and the following requirements are met:

  1. The prospective franchisee (or an existing officer, director, or managing agent of the prospective franchisee who has held that position for at least the last 24 months) has been engaged in a business offering products or services substantially similar or related to those to be offered by the franchised business for at least the last 24 months.
  2. The new product or service is substantially similar or related to the product or service being offered by the prospective franchisee’s existing business.
  3. The franchised business is to be operated from the same business location as the prospective franchisee’s existing business.
  4. The parties anticipate, in good faith, that sales resulting from the franchised business will not represent more than 20% of the total sales in dollar volume of the franchisee on an annual basis.
  5. The prospective franchisee is not controlled by the franchisor.

In order for a transaction to qualify for the claim of exemption pursuant to Corporations Code Section 31108, a notice of exemption must be filed with the Commissioner of Corporations prior to and within the same calendar year as the sale of the franchise. The filing fee of $450, as prescribed in Corporations Code Section 31500(f), must accompany the notice.

The Department of Corporations is proposing to amend the notice of exemption under Rule 310.101 to include the exemption provided by Section 31108. In order to make the filing requirements for the new exemption immediately available during the Administrative Procedure Act rulemaking process, the notice of exemption form attached to this release may be used for filing purposes under Section 31108. Additional forms are available at any office of the Department or through the Department's website: www.dbo.ca.gov.

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