Business Law

Interpretive Opinion No. 71 / 47F

State of California Department of Corporations

Brian R. Van Camp, Commissioner 
In reply refer to: File No. _____

This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

The request for an interpretive opinion contained in your letter dated July 7, 1971, has been considered by the Cornmissioner. Your letter raises the question whether unspecified amendments to franchise agreements and related documents negotiated from time to time between various unnamed wholly-named subsidiaries of A . A  and their respective also unnamed franchisees are ā€œoffersā€ and ā€œsalesā€ of franchises vrithin the definition of Section 31013 of the Franchise Invest.ā€™llent Law and as such subject to the registration requirement of Section 31110 of the Law.

You have represented that from time to time the subsidiaries and their franchisees agree to amend franchise agreements previously entered into for the operation of a restaurant, and documents pertaining to such agreements. For present purposes, as suggested by you, we shall assume that the agreements are ā€œfranchisesā€ within the definition of Section 31005 of the Law, and also that in each case, the franchisee is in possession of the restaurant and has full knowledge of its operation and financial results.

As above stated, you have not specified the amendments concerning which our opinion is requested, but you have mentioned that they include extensions in the payment schedule of notes, temporary or permanent reductions in payments due to the subsidiaries, and Other concessions requested by the franchisees or the subsidiaries. Under consideration presently is an amendment of the basis for detemination of the fee for the license of A .. ~ .3 trade name. In early agreements this fee was fixed as a percentage of purchases by the franchisee, and it is being changed in agreements subsequent to September 1969, to a formula based upon a percentage of the franchiseeā€™s sales.

Section 31110 of the Franchise Investment Law imposes a registration requirement on the offer or sale of any franchise in this state after April 15, 1971. Section 31123 of the Law provides that the franchisor shall promptly notify the Commissioner in writing, by an application to amend the registration, of any material change in the information contained in the application as originally submitted. Therefore, to authorize the further offer or sale of franchises, if the change is material, notification in accordance with Section 31123 is required.

Certainly an amendment changing the basis on which the franchise fee is determined, is a material change and requires notification. You have not furnished us with sufficient.details to enable us to express an opinion concerning other proposed changes. We enclose the Commissionerā€™s Release no. 2-F setting forth the procedure to be observed in requesting interpretive opinions under the Franchise Investment Law.

As regards franchises heretofore sold and which are to be continued in existence, changed to however with respect to some of their terms, the Commissioner takes the position that if the changes are effected by written agreement of the parties, they are subject to the registration requirenent of section 31110 only if they result in either a change of the parties to the agreement or of the location at which the franchiseeā€™s business is operated. This position is taken both with relation to franchises originally granted prior to April 15, 1971, and franchises which were granted originally and registere on or after April 15, 1971.

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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