Beata Krakus

Franchisors, brokers, and franchise attorneys have been anticipating the implementation of Senate Bill 919 (SB 919), which amended the California Franchise Investment Law to create one of the nation's most comprehensive regulatory schemes governing franchise brokers and franchise sales organizations. Because the law was drafted to become operative only after the legislature approved funding, the recent appropriation to support the Department of Financial Protection and Innovation's (DFPI) administration of the program means that the registration requirements are now scheduled to take effect on July 1, 2027. Under SB 919, the broker registration provisions would take effect on the later of July 1, 2026, or the first anniversary of the legislative appropriation.

The new law represents a significant shift for franchise sales practices in California. The law will not only affect traditional franchise brokers, but also franchise consultants, franchise sales organizations (FSOs), broker networks, and others who receive compensation in connection with the offer or sale of franchises.

Who Is a "Franchise Broker"?

SB 919 broadly defines a franchise broker as a person who directly or indirectly participates in the offer or sale of a franchise and receives, or is promised, compensation from a franchisor, franchisee, subfranchisor, or their affiliates. The law is intended to reach individuals and organizations regardless of the titles they use. Many brokers use titles such as franchise consultants, coaches, franchise sales organizations, or broker networks, but California’s law is premised on the belief they all function similarly to franchise brokers.

Certain individuals are excluded from the definition, including franchisors and their employees, affiliated employees of franchisors, and franchisees of the offered brand (unless operating a broker business).

Key Requirements Effective July 1, 2027

1. Annual Registration with the DFPI

Once the law takes effect, franchise brokers must register annually with the DFPI before offering or selling franchises in California. Offering or selling a franchise without an effective registration will be unlawful. The DFPI will have authority to review registrations and to issue stop orders, suspensions, or revocations in appropriate circumstances.

2. Mandatory Franchise Broker Disclosure Document

The most significant aspect of SB 919 is its disclosure requirement. A franchise broker must provide a Uniform Franchise Broker Disclosure Document before communicating with a prospective franchisee about a franchise investment opportunity. The disclosure document is designed to provide prospective franchisees with transparency regarding the broker's background, experience, relationships, and compensation.

Among other items, the disclosure document will include:

• Information about the broker and its services;
• Professional background and experience;
• Certain litigation, regulatory, and legal history;
• The franchises and industries represented by the broker; and
• Information regarding compensation, commissions, incentives, and other economic arrangements that could influence broker recommendations.

The disclosure requirement is intended to address concerns that prospective franchisees may not fully understand how brokers are compensated or the extent to which compensation structures may influence recommendations.

3. Recordkeeping Obligations

Registered franchise brokers will be required to maintain books and records relating to franchise offers and sales activities for at least five years. These records must be available for DFPI review and examination.

4. Expanded Enforcement Authority

The DFPI will have authority to enforce the law through administrative actions, including stop orders and registration suspensions. In addition, violations may create potential civil liability exposure for brokers and other participants in the franchise sales process.

Practical Implications for Franchisors

Although the law is directed at franchise brokers, franchisors should not assume they are unaffected.

Franchisors using third-party brokers, franchise consultants, FSOs, or broker networks should begin reviewing their sales channels well in advance of the July 1, 2027, implementation date. Among other considerations, franchisors should:

• Identify all third parties involved in franchise sales and lead generation activities;
• Review broker agreements and compensation structures;
• Confirm that brokers will be capable of satisfying registration and disclosure obligations;
• Develop procedures to ensure required broker disclosures are delivered at the appropriate time; and
• Evaluate potential indemnification and compliance provisions in broker agreements.

Looking Ahead

California joins a growing number of registration states seeking greater transparency in franchise sales activity. While New York and Washington already regulate franchise brokers, California's law is widely viewed as one of the most comprehensive broker-specific regulatory frameworks adopted to date. It combines registration, disclosure, recordkeeping, and enforcement provisions.

With the funding trigger now satisfied and the operative date set for July 1, 2027, franchisors, franchise brokers, and FSOs should use the coming year to prepare for compliance and monitor additional guidance from the DFPI regarding forms, registration procedures, and disclosure requirements.

If you have questions regarding California's franchise broker law or would like assistance evaluating your broker relationships and compliance obligations, please contact Beata Krakus (bkrakus@ubglaw.com) or Paul Woody (pwoody@ubglaw.com) with UB Greensfelder LLP’s Franchising and Distribution Industry Group.

The information provided in this alert speaks only to the information and guidance we have available as of the date of publication and is subject to change. This legal update was prepared by UB Greensfelder LLP and is not intended as a substitute for professional legal advice. Receipt, by itself, does not create an attorney-client relationship. For any questions, or for further information, please contact your UB Greensfelder attorney.