Franchises – Frequently Asked Questions and Answers

Franchise Registration Questions

1. Do I need to file any documents with the DFPI if I franchise my business?
2. What should I include with my initial franchise application?
3. Where can I send my application?
4. What are the fees for the various applications?
5. What are the required financial statements for registration?
6. I do not have audited financial statements. Can I submit compiled financial statements?
7. Does the DFPI accept a “Review” report balance sheet in lieu of an audit?
8. After I submit my franchise application, how long does it take for the application to be approved?
9. What constitutes a “complete application”?
10. I received a comment letter from the DFPI and it states that all material changes must be submitted by pre-effective amendment. What is a pre-effective amendment and how do I file a pre-effective amendment?
11. The registration of my franchise application is effective, but I need to amend material information contained in the franchise application. Do I need to file anything with the DFPI?
12. When should I submit my renewal of registration?
13. The audited financial statements will not be finalized before the expiration of the registration. Can I still file my renewal application?
14. What happens if I file my renewal application late?

Franchise Registration Answers

1.Do I need to file any documents with the DFPI if I franchise my business?

Yes. A franchisor that offers a franchise in California is required to file an application for registration or exemption notice. The franchise application must be filed in accordance with the California Guidelines for Franchise Registration.

For more information, please see the Guidelines for Franchise Registration at DFPI-310.111.pdf.

2. What should I include with my initial franchise application?

The initial franchise application should include all of the following:

1. Filing fee of $675, payable to the “Department of Financial Protection and Innovation”;
2. Cover letter clearly stating the name of the applicant, the Org-Id number (if known), and the franchisor’s fiscal year-end date;
3. Application Facing Page and a signed and notarized Signature Verification Page and Corporate Acknowledgment (by an officer or general partner of the franchisor or an individual with a power of attorney if the appropriate resolution is attached);
4. Customer Authorization of Disclosure of Financial Records;
5. Consent to Service of Process (not required for California entities);
6. Supplemental Information Page;
7. Sales Agent Disclosure Forms;
8. Franchise Disclosure Document in plain English with all exhibits including the Franchise Agreement;
9. California State addendum;
10. Audited Financial statements according to GAAP, with a manually signed consent by the certified public accountant or firm that audited the financial statements;
11. Internet Ad Exemption Notice; and
12. Guarantee of Performance or other Financial Assurances (if required/needed).

Note: Please do not submit CD-ROMs with your application. The DFPI does not accept CD-ROMs.

3. Where can I send my application?

You can file electronically at:

https://docqnet.dfpi.ca.gov/

While paperless filing is encouraged, applications and amendments can also be submitted on paper. If doing so, please send to one of the following addresses:

Department of Financial Protection and Innovation
320 West 4th Street, Suite 750
Los Angeles, CA 90013-2344

OR

Department of Financial Protection and Innovation
One Sansome Street, Suite 600
San Francisco, CA 94104-4448

OR

Department of Financial Protection and Innovation
2101 Arena Boulevard
Sacramento, CA 95834

4. What are the fees for the various applications?

FEES:

5.What are the required financial statements for registration?

The application must include the franchisor’s financial statements audited by an independent certified public accountant in accordance with generally accepted accounting principles (GAAP). The financial statements required to be filed include a balance sheet as of a date within 90 days prior to the application filing date, and profit and loss statements for each of the three fiscal years preceding the date of the balance sheet and for the period, if any, between the close of the last fiscal year and the date of the balance sheet. (10 C.C.R. 310.111.2.)

6. I do not have audited financial statements. Can I submit compiled financial statements?

No. The DFPI does not accept compiled financial statements unless they are interim financials submitted with audited financial statements.

7. Does the DFPI accept a “Review” report balance sheet in lieu of an audit?

The DFPI may accept a current “Review” report balance sheet instead of an audit if:

• It is the franchisor’s first registration application in California and the franchisor has no prior audited financial statements;
• The “Review” report balance sheet is as of a date within 90 days of the application filing date;
• The financials include profit and loss statements covering the prior three years, or from inception of the business; a Statement of Cash Flow, and appropriate footnotes;
• The “Review” report conforms to American Institute of Certified Public Accountants standards.

8. After I submit my franchise application, how long does it take for the application to be approved?

If the DFPI has not issued a stop order pursuant to Corporations Code section 31115 or sent a comment letter citing deficiencies in your application, the registration automatically becomes effective on the 30th business day after the filing of a “complete application” for registration

9. What constitutes a “complete application”?

A “complete application” means an application that contains the appropriate filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the Commissioner. Read the full definition on Instructions on How to File a Complete Franchise Application.

10. I received a comment letter from the DFPI and it states that all material changes must be submitted by pre-effective amendment. What is a pre-effective amendment and how do I file a pre-effective amendment?

A pre-effective amendment makes changes to an application that is pending. There is no fee to file a pre-effective amendment, unless a balance fee is owed on the previous filing. The applicant must include a facing page and a notarized verification page. Amended materials should be marked to show all changes. See answer number 3 for where to send paper amendment documents. Pre-Effective Amendment documents can be submitted over our self-service portal only if the pending application was filed that way. Going through the same portal account used to file the application, locate the Upload Documents menu option and follow the prompts.

NOTE: Upload Documents is the correct option for Pre-Effective Amendment documents. If you use the File An Application option, the documents will not be associated to the pending application and you will be charged an unnecessary fee.

11. The registration of my franchise application is effective, but I need to amend material information contained in the franchise application. Do I need to file anything with the DFPI?

Yes. The franchisor must file a post-effective amendment with the DFPI. A post-effective amendment is filed after a registration is effective. A post-effective amendment must include a facing page and a notarized verification page. The fee for filing a post-effective amendment application is $50. Amended materials should be marked to reflect changes from the prior filing.

12. When should I submit my renewal of registration?

A renewal application must be filed before the expiration of the registration. The expiration is stated on the registration order issued by the DFPI. The applicant must submit a renewal application and include all documents required for an initial registration. The fee for the renewal application is $450.

You must submit the audited financial statements for the most recent fiscal year. You are required to submit one complete, updated, clean and marked copy of the franchise disclosure document and exhibits.

13. The audited financial statements will not be finalized before the expiration of the registration. Can I still file my renewal application?

No, as the application will not be considered a “complete application.”

14. What happens if I file my renewal application late?

If the renewal application is filed after the expiration of the registration, the applicant must check “REGISTRATION OF AN OFFER AND SALE OF FRANCHISES” on the application-facing page and pay a $675 filing fee.