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California Deparment of Corporations and Franchise Opportunities Law

California Deparment of Corporations and Franchise Opportunities Law

What CA Needs To Do To Address Issues in Franchising

Los Angeles - We should not allow anymore degradation of California through incessant over regulations in the franchising sector.  No other sector of our economy provides as many jobs as franchising.  Some people might say retail, yet over half of all retail jobs are also franchises. Now then; There is a problem in the franchising community with the way the Department of Corporations goes about it's business. First there are only 12 franchise registration states in the United States currently, down from 14 two years ago. California is one of them, considered by even attorneys who make their living filing forms the most onerous.

It is considered the most hostile by active franchisors as well, of which there are only 2230 total in the USA, which franchise about 380,000 outlets at an average of 15 employees. Not all these franchisors provide businesses or franchises in CA to the many displaced workers there. The reason is the slow nature of the process at the Department of Corporations and the hostile and perceived hostile bureaucracy of the Department and the hassles and horror stories, which are discussed in the industry. 1/3 of every consumer dollar spent in the State of California goes through a franchised business. If those businesses do not exist, then no one works there, no cities derive revenue from the sales taxes of products since no products are sold where no store exists, no state income tax is earned since no one has a job there, buildings stay vacant and people who wish to own their own business stay unemployed or underemployed and never get a chance to pursue that part of their American Dream.

Less franchisors mean higher franchise prices for those who do participate due to lack of competition and for the consumer or business owners less of a return on investment for the business owner due to these prices.  The department of Corporations is suppose to be helping consumers, not insuring that they pay higher prices for franchised businesses to pursue their American Dreams. You can then compound that with less consumer choice and slowing of money flow/supply, which means less revenue to the state. The adverse effect being caused by this Department is utterly in-excusable and that is being nice and gentile. All this has occurred in CA due to the duplication of Federal Trade Commission Laws in the California Franchise registration and renewal process.

Franchises are not like Business Opportunities where much fraud takes place, in franchising it is a long term relationship and one which is closely scrutinized by attorneys in the franchising field. In other words any franchisor trying to pull a fast one over on the consumer would have to deal with many private lawsuits and the later FTC. Yet the Department of Corporations adds a third and unnecessary tier to the situation, which stifles free enterprise through slow processing of applications and renewals. Since the laws are a little different it compounds the problems of uniformity of concept and thus hurts economies of scale, which franchisors and franchisees enjoy so they can compete against the larger box type stores, which are crushing the little guys. Little guys meaning small business, which employs 2/3 of the population in the state of California. Every time one of these franchisors is delayed in the application or renewal times it costs the state money in tax revenue and Californian constituents in jobs, lower standards of living, higher prices (artificial inflation), reduced choice and options in pursuing of their American Dream.

What started out as a good idea to regulate Franchise Businesses at the DOC in California many years the prior is no longer needed as the private right of action to sue, attorneys who specialize in franchising, industry associations and the Federal Trade Commission have more than filled in the gap. The pendulum when the DOC is added to the equation by unnecessary duplication, additional paperwork, time to process only compounds the issues of slow recovery or our CA economy and of course lost sales tax revenues to cities and income tax payments and fees to the Great State of California. Recently on the ABA-American Bar Association for Franchising's online 'list serve' the franchising attorneys throughout our great nation, many of which practice law in California were commenting on the problems with franchise registration renewal and applications being delayed for a stamp of approval. 

The fees are not bad considering the CA market size, $600.00 but the review process is a real quote: "bitch". Don't quote me alone, the whole industry agrees, it is a universal truth now as perception is reality. And even though some years we have had a quick return of application other years they have been many months, which is quite a more common occurrence. With this poor business attitude few franchisors look forward to the California market, regardless of its status as the seventh largest economy in the World, which apparently has gone to a few people's heads. The reality is that Franchisor's who are amongst the largest group of economic inflow are not quite as excited as you might think, quite the contrary. Many dread the day when their brands are so large that it is time to finally go into the CA market place. And please do not take it from me, ask around the franchising industry which state is the worst place to do business as a franchise company? The State by allowing the duplication of resources with the Federal Trade Commission is cutting off the hand that is feeding them.

Think of this, we are hurting 2230 companies which account for 1/3 of every dollar which goes through the hands of consumers, that is 33%. No other business format can compete with a Wal-Mart type box store without the incredible synergies and economies of scale that franchising delivers. Wal-Mart by the way Nationwide only does 10%. The consumers of California deserve a break, the franchising community is drowning in paperwork, the DOC cannot do the job fast enough and to top it all off it is a complete duplication of rules? With budget cuts the DOC will slow processing further, when in fact if you closed the franchising division at the DOC, you could save millions per year and increase capital inflows and jobs to the state and greater inflows of tax revenues to city, county and state governments. This is not really a very hard choice to make, if you are looking to cut, there is no better place than the DOC Franchising Division. If you must keep the fees, maybe lower them to $400.00 per year for "franchise notification" (notification can be done online and notification fees can be mailed in or taken by credit card-if you need web assistance for this, I will volunteer my web team at no charge and have this up and running within the week) and have the franchisors agree to abide by the Federal Trade Commission's rules on franchising (this is done in both FL and TX where no problems have been heard of), and watch the franchisors of this country come in and set up businesses for unemployed Californian's who were use to making $60,000-100,000 per year so they can pay income tax to the state, by setting up franchises and employing even more folks.

These franchised units will provide jobs, create sales tax for cities who are telling me they could really use it about now, even with Schwarzneger's recent release of monies to them. This will also spur on growth in commercial real estate and fill up some of those buildings, which are empty, with warm bodies who are making a living and pursuing their dream. The average consumer in CA is living in a house they put 3% down on, refinanced twice, driving an SUV they bought for zero/zero, trying to afford soccer shoes for their 2.2 kids and figure out how they are going to pay off all those credit cards and student loans for degrees that will not help them in the future. 

Surely you can see the real problems and this simple solution. Our company has estimated that we alone could provide 4,000 jobs to the state of California in three years, yet we have focused in 23 other states across this nation. Please see the truth, we are hurting the entrepreneur, I myself have worked hard all my life to build a business and do my part to strengthen our state and my country. Help me with the regulatory nightmare and I and all my fellow franchisors will help you fix this problem. When I started my business at age 12, I was told, that I was part of the ten percent of Californian's who were self employed, that we together employed 2/3 of the people and that I and my fellow business owners were of value.

If so, then why do we duplicate and layer all registrations, applications, paperwork, rules, etc on top of one another sending a clear and present message that California is all show and no go and that we do not believe in small business or entrepreneurship. If you continue to send this negative message and if this is true, then how can we believe in you? Will you please delete the franchising division of the Department of Corporations, as it is an unnecessary division of that department. By doing so you will achieve the following: 1.) save the tax payers, 2.) help economic growth by employing citizens 3.) generate tax revenue to my state 4.) send a signal to the franchising and business community that California means business Please help me, so I can help them and they can help you and you can serve us, and together we can all live free, feed our families and enjoy everything that makes California the greatest state in the country.

Signed, The Entrepreneur.

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