What are the laws governing the sale of a franchise?

In California, the laws governing the sale of a franchise are regulated by the California Franchise Investment Law (CFIL). The CFIL requires sellers of franchises to provide potential buyers with a “Franchise Disclosure Document” (FDD). This document describes the franchise, the business relationship between the franchisor and franchisee, and the costs of the franchise agreement. The FDD must be given to prospective franchisees at least fourteen days before the franchise agreement is signed. It must include details such as the franchiser’s contact information, financial statements, an earnings projection, a copy of the franchise agreement and any other relevant contractual information. In addition to providing this information, the law also requires franchise investors to register their franchise with the California Department of Corporations. Once the registration is approved, the franchiser must give potential buyers a copy of the prospectus before offering a franchise, and the franchiser must also provide buyers with the “Franchisee Disclosure Document” or CDD. All of the above regulations are meant to protect potential franchisees from investing in a venture that may be too risky or have hidden costs. As a result, potential buyers are well-informed and able to make informed decisions.

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What are the laws governing the sale of a franchise?

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