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My Franchisor is Not Registered in California, Can They Still Sue Me as a Franchisee in California?

Franchisors must register their franchise offering with the California Department of Business Oversight in order to sell franchises in California. If a franchisor was properly registered and properly sold a franchise, but has since become not registered (by not renewing its registration), this means that franchisor can not sell any future franchises in California. It does NOT mean they can not enforce a franchise agreement with an existing franchisee in California. Having said that, if a franchisor is incorporated out of state and failed to register to do business with the California Department of Corporations (and file California tax returns, and pay California taxes), then such company can NOT bring an action in California against its franchisee for any reason. California has laws to protect its citizens, and any company who is doing business in California, without properly registering its corporation or LLC, can not avail itself of the laws and protections afforded by the California Courts. Having a California located franchise IS doing business under California laws since that franchisee pays royalties or other fees, in exchange for the franchise, license and related services. If you are a California franchisee with an out of state franchisor threatening legal action, an experienced California Franchise Attorney, such as myself, can help you determine your rights and options.

Encroachment is a Common Issue Between Franchisors and Franchisees in California

Another common issue between franchisors and franchisees is "encroachment". In the Franchise Disclosure Document or FDD, there should be a provision that describes the integrity of the franchisee and the protections (geographical, electronic, product and service offering) that will be put in place to ensure that the actions of the franchisor do not infringe on the territory or integrity of the franchisee and affect the profitability or viability of the franchisee's business. In reality, many franchise markets become overdeveloped and franchisees can be placed too close to one another. Another common scenario involves the development of an "area" or "region", and the franchisor becomes disturbed by the lack of speed in the opening of franchises within the area, or the number of them and decides to place others within that area to increase market penetration.

How Do Franchisors Ensure the Present and Future Success of their Franchise?

Successful franchisors are constantly working to improve the quality of the "product" they are offering to the franchisees. The products and services that are offered, the "system" for how they are to be integrated and offered to the market (the heart of a successful franchise), and the support provided to franchisees are areas where franchisors are constantly working for improvement. Work to develop more competitive and effective sources from your suppliers. Franchisors should constantly analyze each component of their own franchise system, looking for ways to reduce cost, leverage economies of scale and increase the quality and quantity of products offered through the franchise network. They are constantly refining the training process and the systemization of their offering to make it easier for new franchisees to learn, implement and successfully provide the products or services offered under the franchisor's banner.

Challenges Facing California Franchisors : Choosing the Right Franchisees

In order to build your brand and successfully expand your franchise network, it is important to select the right franchisees, especially in the beginning. You want to ensure that you are attracting the type of franchisee who has the skills to execute the business plan for your franchise, but you are also usually looking for a candidate with sufficient capitalization. One of the primary business reasons for the failure of a franchisee is under capitalization - they simply don't have enough financial reserves to get the business up and running and sustain operations through the ramp up stage until the franchisee is profitable. It's one thing to have enough money to pay the franchise fees and get the doors open, but in order for your franchise business to thrive you need to recruit franchisees who have the reserves and the business savvy to see things through.

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