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  4. Franchises – Frequently Asked Questions and Answers

Franchises – Frequently Asked Questions and Answers

Franchise Answers

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.

What should I include with my initial Franchise Registration 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). (If the application was filed electronically, there is no need to notarize the signature);
  4. Customer Authorization of Disclosure of Financial Records;
  5. Consent to Service of Process (not required for California entities);
  6. Supplemental Information Page;
  7. Franchise Seller Disclosure Forms;
  8. Franchise Disclosure Document in plain English with all exhibits including the Franchise Agreement;
  9. California State Addendum;
  10. Audited Financial statements prepared in accordance with U.S. 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.

Where can I send my application?

You can file electronically at:

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

We are actively working to improve the usability and functionality of our electronic filing system (currently referred to as the DOCQNET Portal). For more information about our new Franchise and Securities Electronic Submissions (FRANSES), estimated to launch Q4 2024, sign up for email notifications (FRANSES Updates) to receive updates and future engagement opportunities.

What are the fees for the various applications?

Service Fees
Franchise Registration $675
Renewal Franchise Registration $450
Post-Effective Amendment $50
Pre-Effective Amendment No Fee
Material Modification $50
Notice of Violation $675

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 U.S. generally accepted accounting principles (GAAP). The financial statements required to be filed must 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.)

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.

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 statements 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 the American Institute of Certified Public Accountants Standards.

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

What constitutes a “complete application”?

A “complete application” means an application that contains the appropriate application and certification form, filing fee, Uniform Franchise Disclosure Document, and all additional exhibits, including financial statements in conformity with regulations of the Commissioner, and other forms. For a list of all documents, refer to “Instructions on How to File a Complete Franchise Application” at https://dfpi.ca.gov//instructions-on-how-to-file-a-complete-franchise-application/.

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

A Pre-Effective Amendment Application is an application which makes changes to an application. There is no fee to file a Pre-Effective Amendment Application, unless a balance fee is owed on the previous Application. The applicant must include an Application Facing Page and a notarized verification page (Form C). Amended materials should be marked to show all changes. Pre-Effective Amendment documents must be submitted over our self-service portal, using the same portal account used to file the application. You must locate the Upload Documents menu option and follow the prompts.

NOTE: Upload Documents is the correct option to upload your documents for a Pre-Effective Amendment Application. 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.

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 Application with the DFPI. This application is filed after a registration is effective. The application must include a facing page and a notarized verification page (Form C). (Note: there is no need to notarize an electronic signature). The fee for filing a Post-Effective Amendment Application is $50. Amended materials should be marked to reflect changes from the prior filing, and both complete marked and clean copies of all documents must be submitted.

When should I submit my renewal of registration?

A Renewal Application must be filed before the expiration of the current 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. For a list of all documents, refer to “Instructions on How to File a Complete Franchise Application” at https://dfpi.ca.gov//instructions-on-how-to-file-a-complete-franchise-application/.

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” and will be rejected by DFPI.

What happens if I file my Renewal Application late?

If the Renewal Application is filed after the expiration of the registration, the applicant must file an initial application by checking “REGISTRATION OF AN OFFER AND SALE OF FRANCHISES” on the Application-Facing Page and pay a $675 filing fee.

May a franchisor impose fees through its operations manual or otherwise that were not disclosed in the Franchise Disclosure Document?

No. CA and federal law both require the franchisor to disclose all fees, including prospective fees, to a prospective franchisee in the Franchise Disclosure Document (“FDD”) before the franchise agreement is signed or the receipt of any payment by the franchisor or any of its affiliates in connection with the proposed franchise sale. The Operations Manual is typically provided to the franchisee after the franchise agreement is signed. Failure to disclose a fee or payment required by the franchisor before the franchise agreement is signed constitutes an unlawful omission of fact under California Corporations Code Section 31201. A franchisor cannot impose a fee through the operations manual or otherwise, without pre-sale disclosure in the FDD as required by 16 CFR 436.5(e) and (f) and California Corporations Code section 31201.

Initial fees include “all fees and payments, or commitments to pay, for services or goods received from the franchisor or any affiliate before the franchisee’s business opens.” See 16 CFR 436.5(e) and Item 5 instructions in the CA Guidelines for Franchise Registration. In addition, franchisors must disclose “all other fees that the franchisee must pay to the franchisor or its affiliates, or that the franchisor or its affiliates impose or collect in whole or in part for a third party.” See 16 CFR 436.5(f) and Item 6 instructions in the CA Guidelines for Franchise Registration. “Any formula used to compute the fee must be disclosed as well. If a fee may increase, franchisors must disclose the maximum amount of the increase, or the formula used to determine the increase.” See FTC Franchise Rule Compliance Guide, at 46 (May 2008).

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