Franchise Law in California in CA — Business Law… | CGMIMM
Business Law · CA
Franchise Law in California
California franchise law combines the federal FTC Franchise Rule with state-specific franchise registration / disclosure / relationship laws.
Published May 8, 2026
## Franchise law in California
**Franchising** is a business model where a franchisor licenses its trademark + business system to a franchisee, who operates under the brand following the franchisor's standards.
## Federal FTC Franchise Rule
**16 CFR Part 436** requires franchisors to provide a **Franchise Disclosure Document (FDD)** at least 14 days before sale:
**FDD's 23 disclosure items:**
1. The franchisor + parent / predecessor / affiliates
2. Business experience
3. Litigation history
4. Bankruptcy history
5. Initial fees
6. Other fees
7. Estimated initial investment
8. Restrictions on sources of products + services
9. Franchisee's obligations
10. Financing
11. Franchisor's assistance, advertising, computer systems, training
12. Territory
13. Trademarks
14. Patents, copyrights, proprietary information
15. Obligation to participate in actual operation
16. Restrictions on what franchisee may sell
17. Renewal, termination, transfer, dispute resolution
18. Public figures
19. Financial performance representations
20. Outlets and franchisee information
21. Financial statements (audited)
22. Contracts
23. Receipts
**Penalties for non-compliance** with FDD requirements: FTC enforcement, state penalties, civil rescission claims.
## State franchise laws
**Three categories:**
**1. Registration states** — require franchisors to register before selling:
- California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, Wisconsin
**2. Filing states** — require notice filing (less burdensome):
- Connecticut, Florida, Kentucky, Nebraska, North Carolina, South Carolina, Texas, Utah
**3. Relationship states** — regulate franchisor-franchisee relationship beyond registration:
- Most states have some relationship law
- Common provisions: good cause for termination, notice requirements, transfer rights, non-renewal protections
## Franchise relationship laws
Strong relationship-law states (NJ, IA, MN, others):
- **Good cause** required for termination
- **Notice** of breach + cure period
- **Renewal protections**
- **Anti-encroachment** (limits on opening competing units)
- **Right of first refusal** on transfers
- **Limits on competition restrictions**
## Common franchise disputes
**Pre-sale disputes:**
- Misrepresentation in FDD
- Earnings claims violations (Item 19)
- Failure to register / register fully
- Failure to deliver FDD timely
- Encroachment by franchisor competitor
**Operational disputes:**
- Unilateral system changes (POS systems, products, advertising)
- Required source / supplier issues
- Royalty / fee calculations
- Marketing fund use
- Territory / encroachment
- Quality standards enforcement
**Termination disputes:**
- Without good cause
- Without proper notice
- Without cure opportunity
- Wrongful non-renewal
**Transfer disputes:**
- Withholding consent
- Right of first refusal abuse
- Transfer fees + conditions
## Common franchisee mistakes
**Pre-purchase:**
- Not reading entire FDD carefully
- Not contacting existing + former franchisees (Item 20 list)
- Not getting independent legal + financial review
- Believing oral promises beyond FDD
- Not validating earnings claims
- Insufficient capital
**Operational:**
- Inadequate operational compliance
- Failing to follow system standards
- Disputes over royalty calculations
- Inadequate documentation
## Franchisor strategies
Common franchisor positions:
- Maintain brand standards through enforcement
- Limit franchisee non-compete + non-solicit obligations
- Require system changes
- Audit franchisee compliance
- Default + cure procedures
- Transfer + renewal control
## Franchise vs other business arrangements
**Franchise:**
- Trademark license + system + control + payment
- All three triggers FTC Rule
- Most regulated arrangement
**Distributor / dealer:**
- Less control / system
- Less regulation
- Some states regulate (e.g., motor-vehicle dealer franchises)
**Licensing:**
- Trademark only
- No comprehensive system
- Less regulation
**Joint venture:**
- Co-ownership / partnership
- Different regulatory framework
Misclassification of true franchise as something else = federal + state violation.
## Pre-purchase due diligence
**Essential franchisee due diligence:**
1. Read entire FDD carefully (often 200+ pages)
2. Talk to current AND former franchisees from Item 20
3. Validate earnings claims (Item 19) against actual financials
4. Visit existing locations
5. Get franchise attorney review
6. Get accountant review
7. Investigate territory + competition
8. Understand all fees (royalty, marketing, technology, audit)
9. Review post-termination restrictions
10. Plan for renewal + transfer scenarios
## Franchise sales process
1. Franchisee inquires + receives marketing materials
2. Franchisor delivers FDD
3. **14-day waiting period** before signing (FTC + most states)
4. State-specific approvals if registration state
5. Franchise Agreement signing
6. Initial payment
7. Training
8. Buildout + opening
## What you should do
If you're considering buying a franchise in California: hire a franchise attorney BEFORE signing — review costs $1,500-$5,000 typically and can save tens of thousands. If you're a franchisor expanding into California: ensure proper registration / filing compliance. Most franchise attorneys focus exclusively on this area; general business lawyers often miss critical issues.
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*This guide is general information about federal and California franchise law as of early 2026 and is not legal advice. Franchise law is highly technical. Talk to a licensed franchise attorney about your specific situation.*
This guide is for general information only and does not constitute legal advice. Laws change and outcomes depend on your specific situation — talk to a licensed attorney before acting on anything you read here.