IFA Praises New Requirements for Third-Party Franchise Sellers
The International Franchise Association on Tuesday praised California Gov. Gavin Newsom for signing Senate Bill 919 into law. The new law extends disclosure requirements to third-party franchise sellers and will affect franchise brokers, broker networks and franchise sales organizations. It is scheduled to take effect in July 2026.
U.S. franchise sales are brisk, with a new franchise opening its doors approximately every eight minutes during each business day, according to a July 2024 report from digital marketing agency HigherVisibility. About 10.5% of U.S. businesses are franchises, with 80% of them regional or local brands and 16% national or global, HigherVisibility stated. The additional presale disclosures required by the new California law will help franchisee candidates choose a brand, whether big or small, that’s well-suited to their passions and finances. That, in turn, improves their chances of business success.
New Requirements for Third-Party Franchise Sellers
Senate Bill 919 amends the California Franchise Investment Law to add new requirements for third-party franchise sellers. Those requirements call for:
- Annual registration by the third-party franchise sellers, who would pay a fee. This regulation is similar to requirements already in place in New York and Washington.
- Prospective franchisees to receive a brief disclosure document with general information about third-party franchise sellers and questions that a franchisee candidate may ask of a third-party franchise seller. It contains the contact information and the state of formation (if applicable) of the third-party seller. The disclosure document also has a mini-résumé about the seller outlining: professional experience for the past five years (plus relevant certifications and continuing education); litigation history; the types of services performed and general compensation structure; the industries the seller has represented and the number of brands within each industry; and the brands sold during the previous year, including the total units sold for each brand.
Why IFA Backs the New Law
The IFA had supported the bipartisan legislation because it undergirds the organization’s principles of responsible franchising, which are detailed in guidelines that the IFA released in May of this year. President and CEO Matt Haller said the new law will improve the information available to prospective franchisees during the presale process, which “strengthens the foundation on which the franchise relationship begins. We were honored to lead the discussion and debate with all the franchise stakeholders, and we hope this law will serve as a model for responsible franchising in other states.”
Jeff Hanscom, the IFA’s vice president of government relations and counsel, told Franchise Times that the legislation aims to comprehensively inform prospective franchisees. “The bill came out of a working group within the IFA where we worked with legislators, franchisors, franchisees and the broker community. The entire goal is to ensure that everybody has transparency in the sales process,” Hanscom said.
Other Supporters of Franchise Sales Disclosure Law
California lawmakers acted swiftly on Senate Bill 919, which Democratic State Sen. Thomas Umberg introduced in January. Senate Bill 919 passed the state Senate by a 37-1 vote in May. The California Assembly approved the legislation 75-0 in August.
In a previous IFA news release, Umberg, a Democrat from Santa Ana, said the legislation provides important protections for Californians looking to invest in franchises. The IFA, the Coalition of Franchisee Associations and American Association of Franchisees & Dealers had advocated for its passage since day one.
